Institutional Shareholder Services Releases 2012 Proxy Voting Updates

Today, Institutional Shareholder Services ("ISS") released its 2012 proxy voting updates. The full text of the updates and an executive summary can be accessed at http://www.issgovernance.com/policy.

Key policy updates include the following:

Management Say-on-Pay Proposals: Pay for Performance Evaluation - ISS is refining its methodology for analyzing the alignment between pay and performance. ISS states that its new approach will provide investors with a more robust view of the relationship between executive pay and company performance over a sustained time horizon. Specifically, ISS will consider the relative alignment between the company's total shareholder return and the CEO's total pay rank within a peer group, as measured over one and three years, the multiple of the CEO's total pay relative to the peer group median, as well as absolute alignment (the alignment between CEO pay and a company's share return over the prior five years). If ISS perceives that alignment is weak, it will conduct further in-depth analysis to determine if there are mitigating factors. ISS will provide additional guidance on pay-for-performance methodology in a technical document scheduled for release in December, and will disclose peer group methodology and rationale in various communications leading up to the 2012 proxy season.

Proxy Access Shareholder Proposals - Although the D.C. Circuit struck down the SEC's mandatory proxy access rule this summer (see our July 22, 2011 Public Companies Alert here), newly effective amendments to Rule 14a-8 provide that issuers may no longer exclude from proxy materials shareholder proposals for proxy access procedures (see our September 7, 2011 Public Companies Alert here). While the revised ISS policy with respect to such proposals remains case-by-case, ISS will expand the factors that it will examine. ISS will consider various company-specific and proposal-specific aspects, including the ownership thresholds proposed (i.e., percentage and duration); the maximum proportion of directors that shareholders may nominate each year; and the method of determining which nominations should appear on the ballot if multiple shareholder groups submit nominations. ISS indicates that it expects a variety of access proposals will be made in 2012, some potentially binding, with differing ownership thresholds. In January 2012, ISS will provide additional guidance based on an examination of specific proposals. (We note that on November 15, the first reported proxy access shareholder proposal was filed with issuer MEMC Electronics Materials, Inc.)

Board Responsiveness to Earlier Say-on-Pay Votes - ISS will make recommendations on a case-by-case basis on compensation committee members and the management say-on-pay proposal if the company's previous say-on-pay resolution received less than 70 percent support from all votes cast. The recommendations will take into account the company's response; disclosure of engagement with major investors; specific actions taken to address the compensation issue(s) that caused the significant dissent; whether the issue(s) raised is recurring or one-time; and the company's ownership structure. Cases where support was less than 50 percent will warrant the highest degree of responsiveness.

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