Category Voting on Equity Plan Proposals

ISS Posts 2012 Compensation FAQs

On January 25, 2012, ISS posted its first set of compensation frequently asked questions (FAQs) about its 2012 policies.  The policies covered include: Pay-for-Performance, Management Say on Pay Responsiveness and Equity Plans.  Below is a summary of the FAQs that were presented for each policy.

Pay-for-Performance (P4P)

  • CEOs who have not been in their positions for 3 years will be subject to the Quantitative Analysis under the P4P policy.
  • For years in which a company has more than 1 CEO, ISS will use only once CEO’s pay, generally the CEO who was in the position at FYE.
  • ISS will annualize the salary of a CEO serving for less than 1 year.
  • If a company has co-CEOs, ISS will use the CEO with higher total compensation.
  • TSR generally will be calculated from the last day of the month closest to the subject company’s FYE.
  • For companies with early meetings in 2012, ISS will use the latest available compensation data, which may be from the prior year (2010).
  • ISS does not include the subject company in determining the peer group median CEO pay or count it in achieving the minimum 14 peer companies.
  • An adverse P4P recommendation that is attributed to non-performance-based equity awards when there is an equity plan on the proxy may lead ISS to recommend against the equity plan proposal .
  • If a company has not been traded for a full 5 years, ISS will still apply the Quantitative Analysis; if traded less than 3 years, ISS will still apply the 1-year RDA and the MOM.
  • ISS will continue to define pay as Summary Compensation Table pay, with its own valuation of stock options.
  • Swings in pension amounts will not automatically be exempted from ISS’s Quantitative Analysis, but ISS may consider the underlying cause as part of its Qualitative Analysis.
  • ISS will look at companies that are in the Russell 3000 Index as well as company-selected peers outside the Russell 3000 Index if they meet ISS’s peer company requirements and could then be used in other P4P analyses after the next update of peer groups.
  • A company will not always be at the median of its peer group.
  • A company will have more than 14 peers if within the same 6-digit GICS group (up to 24 companies can be selected).
  • The minimum number of peer companies isn’t really 14, it is 12.  In a limited number of cases, when size and industry parameters are difficult to satisfy, ISS may use a minimum 12-member peer group.
  • Companies’ commitments to strengthen their pay for performance alignment are not as relevant given the annual management say on pay votes.

Management Say on Pay (MSOP) Responsiveness

  • All companies, regardless of the results on their last MSOP vote, should highlight how they are improving their compensation programs.
  • ISS will take into consideration shareholder engagement and actions taken in response to shareholder desires. But, ISS will also consider the nature of the issue(s) perceived to have caused a high opposition to the MSOP vote and their impact going forward.
  • A low or negative vote on MSOP will roll over and affect ISS’s voting recommendation on the election of directors(assuming an MSOP is on the proxy)  under two conditions:
  • If an issue is deemed sufficiently egregious to warrant that, even if MSOP is on the ballot; and
  • If ISS determines that the board has failed to respond adequately to issues that led to high opposition to the prior MSOP proposal.

Equity Plans

  • ISS will apply a full analysis, including SVT analysis, for all equity plans put up for shareholder approval, for any reason, for the first time following a company’s IPO.
  • ISS has changed the volatility and dividend yield assumptions for purposes of the ISSue Compass model.  Volatility will now be measured on a 3-year historic basis as of the applicable quarterly data download date. Dividend yield will now be determined using the historic 5-year dividend yield average.

The FAQs can be found at: http://www.issgovernance.com/policy/2012/USCompensationFAQ

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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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Preliminary Equity Plan Voting Results for 2011 Proxy Season

So far during the 2011 Proxy Season, Russell 3000 companies have put forward 673 equity compensation plan proposals on their proxies.

Of these, ISS has recommended:

  • Against 140 proposals, and
  • For 521 proposals.

ISS has not issued a vote recommendation for 12 proposals.

On the actual votes for these proposals:

  • 495 proposals Passed
  • 7 proposals failed, and
  • 171 proposals are still pending.

Source: ISS Voting Analytics, as of June 4, 2011

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Webcast: The Current Governance and Proxy Voting Landscape

On October 7, 2010, Ed Hauder of Exequity will join Andrew Letts of State Street Global Advisors and Reid Pearson of Alliance Advisors, LLC for this Alliance Advisors’ webcast. The speakers will discuss the current governance and proxy voting landscape, including the Dodd-Frank Act, say on pay, equity plan proposals and proxy access.

For more information about this FREE webcast, including how to register, please visit:

http://allianceadvisorsllc.com/dimages/20.png

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