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ISS has issued its 2012 Policy Update

 Pay-for-Performance (P4P)

 ISS’ revised analysis will consider the following factors:

  • Peer group alignment.
    • The degree of alignment between the company’s Total Shareholder Return, or TSR, rank and the CEO’s total pay rank within a peer group, as measured over one-year and three-year periods (weighted 40 percent/60 percent);
    • The multiple of the CEO’s total pay relative to the peer group median.
  • Absolute alignment. The absolute alignment between the trend in CEO pay and company TSR over the prior five fiscal years – i.e., the difference between the trend in annual pay changes and the trend in annualized TSR during the period.

In cases where alignment appears to be weak, further in-depth analysis will determine causal or mitigating factors, such as the mix of performance- and non-performance-based pay, grant practices, the impact of a newly hired CEO, and the rigor of performance programs.

ISS will provide additional guidance on the 2012 Pay-for-Performance methodology in a technical document that is scheduled for release in December. ISS will also disclose its peer group methodology and rationale in various communications leading up to the 2012 proxy season, allowing institutional investors and corporate issuers to understand how peer groups are constructed by ISS.

Say-on-Pay Opposition

ISS will recommend case-by-case on compensation committee members (or, in exceptional cases, the full board) and the Management Say-on-Pay, or MSOP,  proposal if the company’s previous say-on-pay proposal received the support of less than 70 percent of votes cast on the prior management say-on-pay proposal, taking into account the company’s response, including:

  • disclosure of engagement efforts with major institutional investors regarding the issues that contributed to the low level of support;
  • specific actions taken to address the issues that contributed to the low level of support;
  • other recent compensation actions taken by the company;
  • whether the issues raised are recurring or isolated;
  • the company’s ownership structure; and
  • whether the support level was less than 50 percent, which would warrant the highest degree of responsiveness.

Say-on-Pay Frequency Votes 

ISS would recommend against or withhold from the entire board, if the board implements an advisory vote on executive compensation on a less frequent basis than the frequency which received the majority of votes cast at the most recent shareholder meeting at which shareholders voted on the say-on-pay frequency.


In a situation where voters have more than two choices, the possibility exists that no choice will receive a majority vote. In cases where no option received a majority of the votes cast, the preference of shareholders may be unclear. Therefore, if a board implements an option that is less frequent than that which received a plurality, but not majority, of votes cast, additional factors will be taken into consideration on a case-by-case basis including the board’s rationale for implementing a less recurring say-on-pay vote, ownership structure, compensation concerns, and say-on-pay support level from prior year. 

Proxy Access Proposals


ISS’ existing case-by-case policy on proxy access shareholder proposals did not incorporate certain expected core features of such proposals and overemphasizes the proponent’s rationale given ISS’ support in principle for these proposals. The existing policy also does not address management proposals, which may also appear in 2012. While the revised policy for 2012 remains case-by-case, ISS expands and refines the factors that will be examined in the evaluation and broadens the policy to apply to management proposals as well. ISS will consider a range of company-specific and proposal-specific factors, including:

  • the ownership thresholds proposed in the resolution (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 shareholders submit nominations, as well as any other factors deemed relevant.


Check frequently for updates on the Dodd-Frank Act and other important securities law matters.

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