Proxy Voting: Institutional Shareholder Services 2012 Guidelines Released

“On November 17, Institutional Shareholder Services Inc. (ISS), a leading provider of corporate governance solutions to the global financial community, released its final 2012 updates to its proxy voting guidelines, which will be used by ISS in formulating its 2012 voting recommendations for publicly held companies with shareholder meetings on or after February 1, 2012.” (From ISS Releases 2012 Updates to Proxy Voting Guidelines by Morgan Lewis) 

Earlier this month, Institutional Shareholder Services released its final benchmark proxy voting guidelines, which outline the criteria ISS will evaluate to make their voting recommendations in the upcoming 2012 proxy season. For your reference, here’s an overview of the key points in the ISS guidelines:

On pay-for-performance…

“ISS has revised its approach to pay-for-performance in response to comments from both investors and issuers that pay-for-performance should be viewed in a long-term context rather than focusing only on the most recent year. As a result, ISS has made some changes to its pay-for-performance analysis to consider pay and performance over a longer time frame. The new approach to pay-for-performance begins with a quantitative analysis for companies in the Russell 3000 index. The quantitative analysis considers both peer group alignment and absolute alignment. ISS generally establishes a peer group of 14 – 24 companies based on market capitalization, revenue and industry group.” (From ISS Releases U.S. Proxy Voting Guidelines for 2012 by Morrison & Foerster LLP) 

On election of compensation committee members…

“ISS clarified that, in determining whether to recommend shareholders vote FOR the election of directors serving on a company’s compensation committee, ISS will analyze, on a case-by-case basis, the company’s response to advisory votes on executive compensation (i.e., “say-on-pay” votes) receiving significant opposition. Such analysis will take into account the level of opposition to executive compensation policies and practices, the company’s ownership structure, disclosure regarding efforts to engage institutional investors regarding compensation issues, the company’s response to investor input, specific actions taken to address issues that resulted in significant opposition to executive compensation and actions taken with respect to prior executive compensation issues of concern.” (From Corporate and Financial Weekly Digest – October 21, 2011 by Katten Muchin Rosenman LLP) 

On proxy access…

ISS generally supports proxy access proposals as ‘an important shareholder right.’ It will analyze proxy access proposals on a case-by-case basis, taking into account unspecified ‘company-specific factors,’ as well as factors specific to the proposal, such as ownership thresholds (percentage and holding period) to gain access, the maximum proportion of directors and, in the case of multiple nominations, the method of determining whose nominations will appear in the proxy.” (From ISS Releases 2012 Policy Updates by Ropes & Gray LLP) 

On equity plans of newly public companies…

“In the executive summary to its final 2012 policies, ISS stated that equity plans coming to a shareholder vote for the first time after a company’s initial public offering will be evaluated under the same guidelines as a standard equity plan, even if no new shares are being requested. ISS will make its recommendation based on evaluation of all aspects of the particular plan, including consideration of total shareholder value transfer, repricing, burn rate (if applicable), and any liberal change-in-control provisions. Other factors, such as pay-for-performance or problematic pay practices as related to say-on-pay, may be considered if deemed appropriate.” (From ISS Issues Final Policies for 2012 by Reed Smith) 

On political contributions…

“Consistent with recent developments seeking improved transparency, ISS has revised its proxy voting policy from a case-by-case review to a “generally vote FOR” position with respect to proposals requesting greater disclosure of a company’s political contributions and trade association spending policies and activities. However, in reaching its voting recommendation, ISS will consider the company’s current disclosure of policies and oversight mechanism, including its business rationale for supporting political organizations, and any recent significant controversies, lines or litigation related to the company’s political activities. (From ISS Issues Updated Proxy Voting Policies for the 2012 Proxy Season by Manny Rivera) 

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