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Predictions for ISS’s 2012 Policy Updates

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After having had some time to review and reflect on the 2011-2012 Policy Survey Summary of Results (see prior blog entry, ISS Releases 2011-2012 Policy Survey Summary Results),  I wanted to share where these survey results might lead ISS for its 2012 Policy Updates with regards to its compensation policies:

  1.  Make companies that don’t respond and explain what they have done to address compensation concerns when there is a SOP vote that gets less than 80% support  (some chance could be set at 70% or 75%) subject to some heightened review, probably factored into ISS’s vote recommendations on directors under the (poor) communications practices analysis piece.
  2. Introduce a new policy with respect to discretionary annual bonuses – perhaps ISS will just weigh it as a factor as part of its subjective pay-for-performance analysis.
  3. Equity compensation plan proposal policy could get additional factors that ISS will weigh FOR/AGAINST such proposals.  This could make the evaluation of equity plan proposals a bit more subjective, but perhaps these factors would only come into play when a bright line test is failed, i.e., SVT cost exceeds a company’s allowable cap. However, some factors may get weighed even when the allowable cap isn’t exceeded, somewhat like problematic pay practices, i.e., factors like Liberal CIC definition, excessive potential voting power dilution relative to peers, High CEO/NEO concentration ratio, evergreen features, prolonged poor financial performance, and prolonged poor shareholder returns.
  4. Make single-trigger CIC equity vesting in the following cases enough to recommend AGAINST an equity plan proposal:
    • Automatic accelerated vesting upon a CIC
    • Accelerate vesting at the board’s discretion after a CIC
  5. ISS could decide to evaluate all equity compensation plan proposals under its equity compensation plan policies (including the SVT model) even if the proposal is made just after an IPO to gain 162(m) qualification. Possibly could be expanded to cause ISS to analyze any equity compensation plan proposal under its equity compensation plan policy regardless of whether any new shares are being requested.
  6. ISS might expand the problematic pay practices policy further to not only apply to new and materially amended agreements but also to existing/formerly grandfathered agreements that include problematic pay practices such as excise tax gross-ups.  That might be a stretch, but this past year (for the 2011 Policy Updates issued in late 2010) ISS effectively applied its policy change retroactively at least to company actions since the prior proxy (1/1/2010 for calendar-year companies), and ISS has been focused on getting rid of excise tax gross-ups.  This might not happen for 2012, could be in 2 years (i.e., for 2014) since that would then put them out 3 years from the introduction of the semi-retroactive problematic pay practices policy with respect to agreements and the term of most employment agreements is 3 years. 

All of the above are just my own speculations. I have heard nothing about any of these these things actually being introduced as policy changes for 2012.  But, they do represent my best guess as to what ISS might change for 2012 based on the recently released policy survey results. We’ll just have to wait to see what changes ISS has in store for proposals in 2012.