Comment period on voting policy for 2011 has closed
Institutional Shareholder Services (ISS) has released the final version of its 2011 policy updates that expand on existing proxy voting guidelines.
The updated US policy covers new regulations that address shareholder votes on say-on-pay (SOP) frequency and on golden parachute proposals that have been created by the Dodd-Frank Wall-Street Reform and Consumer Protection Act, coupled with director attendance, shareholder rights and capital requests.
The updated regulations will apply to all companies with shareholder meetings on or after Feb. 1, 2011.
Some highlights from the updates:
Frequency of say on pay
ISS is integrating a new US policy that recommends a vote for annual advisory votes on compensation that states, 'the most consistent and clear communication channel for shareholder concerns about companies’ executive pay programs [is the management say on pay].' They argue say on pay votes every two or three years will impede the communication between the shareholder vote references and the year that is being discussed.
Votes on Golden Parachutes
In regards to votes on golden parachutes in a consolidation, proposed sale merger or acquisition, ISS intends to recommend case-by-case proposals to approve the company’s golden parachute compensation ensuring it is in sync with its policies on issues surrounding pay practices related to severance packages.
But, there are some provisions that may lead to an against recommendation, which includes ‘recently adopted or materially amended agreements,’ like tax gross-up provisions or single trigger payments that will happen immediately upon a change in control; single-trigger vesting of equity based on a change in control definition that only requires shareholder approval of the transaction, and potentially excessive severance payments. In the event where the golden parachute vote is adopted into a company’s MSOP vote, ISS will analyze the SOP proposal in accordance with those guidelines, which can essentially enhance that component of the overall evaluation.
Director Attendance
Currently, ISS has a policy to recommend a vote against or withhold from individual directors who are present for less than 75 percent of the board and committee meetings without a suitable excuse, and to evaluate case-by-case basis only if the company is able to give a public disclosure that justifies the director’s absences.
For the next year, the international body is removing the bar on the private disclosure option for explaining absences.
Shareholder’s Ability to Act by Written Consent
Since the corporate governance sector has changed, investors have now returned to filing proposals requesting the shareholder’s ability to perform their duties under written consent. This means that when a shareholder acts by written consent it takes into account factors such as the stockholder’s right to act by written consent, consent threshold, the inclusion of exclusionary or inappropriate language, investor ownership structure and shareholder support of and management’s response to previous shareholder proposals.
Additionally, the ISS will continue to make general recommendations of votes for management and shareholder proposals after factoring in the above requirements. On the other hand, the ISS will recommend on a case‐by‐case basis, and may recommend against, if, in addition to the mentioned factors, the company has: ‘an unfettered right for shareholders to call special meetings at a 10 percent threshold; a majority vote standard in uncontested director elections; no non‐shareholder approved pill; and an annually elected board,’ the policy update said.
