Category Institutional Investors

Council of Institutional Investors Updates Policies

On October 5, 2012, the Council of Institutional Investors (CII) released updated corporate governance policies. The primary change in regards to executive compensation involved a tightening of the CII’s policies with respect to clawbacks. CII now calls for companies to:

  • Ensure that sufficient and appropriate mechanisms and policies are in place to recover erroneous bonus and incentive awards paid in cash, stock or any other form to current or former executive officers and to prevent the payout of such awards in the first place.
  • Establish a minimum recovery period of at least 3 years following discovery of the fraud or cause forming the basis for the recovery.

The CII’s revised Corporate Governance Policies can be found at:

http://www.cii.org/UserFiles/CII%20Corp%20Gov%20Policies%20Full%20and%20Current%2010-5-12%20FINAL.pdf

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Speaking at WorldatWork Total Rewards Conference

Ed will be speaking at WorldatWork’s Total Rewards 2012 Conference this Wednesday, May 23,2012 from 9:15 to 10:30 am with Bonnie Kelly from Capital One Financial Corporation and Reid Pearson of Alliance Advisors. Their presentation is “Get to Know the Long-Lost Relatives You Never You Had: How to Get to Know Your Shareholders,” which will look at what you can do to get to know your shareholders, what they want, how they are likely to react to certain compensation-related proposals and how your team can help ensure your proposals succeed.

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ISS Publishes Preliminary 2011 Postseason Report

On August 1, 2011, ISS published its preliminary report of the 2011 proxy season.  The report is available for download here (free registration required):

http://www.issgovernance.com/docs/2011USSeasonPreview

Key findings of the report include:

  • Average support for Say on Pay votes was 91.2%
  • Say on pay votes failed at 37 Russell 3000 companies (1.6% of total companies reporting vote results)
  • The 168 companies that received greater than 30% opposition on their say on pay votes in 2011 will receive greater attention in 2012
  • Shareholder proposals seeking board declassification averaged support of 73.5%, and won majority supports at 22 of 23 large-cap companies
  • A significant decline in shareholder opposition to directors; as of June 30, only 43 directors at Russell 3000 companies failed to win majority support compared to 87 for the same time period in 2010
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More Information on Fidelity’s 2011 Proxy Voting Guidelines

Well, I have learned a bit more about Fidelity’s 2011 Proxy Voting Guidelines (thanks to Reid Pearson at Alliance Advisors for sharing what he had learned with me as well).  Here is what I believe to be true about the new Fidelity guidelines:

  • The new guidelines, including the burn rate policy for equity plan proposals, are effective immediately;
  • Fidelity will not use a multiplier for full-value awards, i.e., options granted during the fiscal year + full value awards granted during the fiscal year / weighted average common shares outstanding (this is the “Traditional Burn Rate” in my Burn Rate Calculator available under Reference Materials –> Excel Tools; this is also reported on ISS’s Proxy Reports as the “unadjusted burn rate”);
  • Fidelity will be considering mitigating factors to permit them to support a plan when a company has burn rates that exceed the burn rate caps (similar to what Fidelity did with its prior dilution caps). But, Fidelity is still working out the details.

I think there are a few open questions on the new Fidelity guidelines as well. For example, since Fidelity will look at historic burn rate, will it look at prospective burn rate at all in terms of the size of the share request and how many years it might last? Does that matter to Fidelity? One would assume that exceptions will have to made for extraordinary situations that cause a spike in burn rates from typical practice, but what will Fidelity be looking for in order to approve such exceptions?

Will Fidelity make allowances to its general burn rate caps for companies in various industry groups that have historically had higher burn rates (technology and biotech come to mind)? If not, what will this mean for these companies’ ability to gain shareholder approval of equity compensation plan proposals and continue to make use of equity awards as part of their compensation packages? We’ll have to wait and see how Fidelity ends up developing these guidelines further to see what the practical implications will be for share requests.

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