They're here: Institutional Shareholder Services has unveiled its 2011 updates to its benchmark proxy voting guidelines.
The U.S. policy updates cover new policies to address shareholder votes on say-on-pay frequency and on golden parachute provisions created by the Dodd-Frank Wall-Street Reform and Consumer Protection Act, as well as director attendance, shareholder rights and capital requests.
Frequency Of SOP
As expected, ISS is adopting a new U.S. policy recommending a vote for annual advisory votes on compensation, which it says provide "the most consistent and clear communication channel for shareholder concerns about companies' executive pay programs."
Votes on Golden Parachutes
For votes on golden parachutes in an acquisition, merger, consolidation, or proposed sale, ISS will recommend case-by-case on proposals to approve the company's golden parachute compensation, consistent with its policies on problematic pay practices related to severance packages.
For instance, some features that may lead to an against recommendation include recently adopted or materially amended agreements that include excise tax gross-up provisions or modified single triggers; single trigger payments that will happen immediately upon a change in control; single-trigger vesting of equity based on a CIC definition that only requires shareholder approval of the transaction, and potentially excessive severance, among others. In cases where the golden parachute vote is incorporated into a company's MSOP vote, ISS will evaluate the SOP proposal in accordance with those guidelines, which may give higher weight to that component of the overall evaluation.
ISS will apply its standing policies on CIC packages to the newly required proposals regarding specific advisory votes on "golden parachute" arrangements for named executive officers. Those policies have focused on severance packages that provide inappropriate windfalls and cover certain tax liabilities of executives.
ISS' current policy is to recommend a vote against or withhold from individual directors who attend less than 75 percent of the board and committee meetings without a valid excuse, and to evaluate on a case-by-case basis if the company provides meaningful public or private disclosure explaining the director's absences.
For 2011, ISS is removing the private disclosure option for explaining absences. ISS will generally recommend a vote against or withhold from individual directors who attend less than 75 percent of board and applicable committee meetings (with the exception of new nominees). The updated policy clarifies that acceptable reasons for absences are generally limited to medical issues/illness; family emergencies; and if the director's total service was three meetings or less and the director missed only one meeting, and those reasons will only be considered if disclosed in the proxy or another SEC filing. If the disclosure is insufficient to determine whether a director attended at least 75 percent of board and committee meetings in aggregate, ISS will generally recommend a vote against or withhold.
Shareholder Ability to Act by Written Consent
ISS' current policy is to generally recommend a vote for management and shareholder proposals that provide shareholders with the ability to act by written consent, taking into account factors such as shareholders' current right to act by written consent; consent threshold, the inclusion of exclusionary or prohibitive language; investor ownership structure and shareholder support of, and management's response to, previous shareholder proposals.
Based on feedback from issuers and institutional investors, for 2011, ISS has added the company's overall governance practices and takeover defenses (with emphasis on shareholders' ability to call special meetings) as an additional factor it will consider in evaluating such proposals.
ISS will continue to generally recommend a vote for management and shareholder proposals seeking to provide shareholders with the ability to act by written consent. However, ISS will recommend on a case-by-case basis, and may recommend against, if, in addition to those 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 updated policies will apply to all companies with shareholder meetings on or after Feb. 1, 2011.