The Grant Thornton Perspective On The ISS Proxy Voting Guidelines For 2012

As many of our clients and colleagues know, Institutional Shareholder Services (ISS), a U.S. proxy advisory firm, has issued its final U.S. corporate governance policy (i.e., proxy voting guidelines) for 2012. The changes are significant in many instances and provide insights into the ISS's evolving vision for 2012. Grant Thornton has reviewed the changes based on how they might affect ISS recommendations regarding a company's say-on-pay votes and annual nominations and elections for members of boards of directors, particularly those who also serve on a company's compensation committee.

While the ISS is only one voice among many participants in the executive compensation and proxy voting processes, the organization's voting recommendations can influence the way in which institutional investors cast their ballots during proxy season. Thus, our public company clients are interested in how the ISS develops its recommendations in order to better evaluate potential proxy voting outcomes and, when possible, to proactively align company practices and programs with ISS guidance. In addition to summarizing the new ISS guidelines, this article will explore how some of those guidelines might coincide with the implementation of executive compensation programs that are effective and likely to appeal to shareholders.

Summary of ISS 2012 proxy voting guidelines and the pay-for-performance evaluation methodology

The following table summarizes the key changes in ISS 2012 proxy voting guidelines and includes an observation regarding each change:

We believe that companies would benefit from becoming more familiar with the ISS white paper "Evaluating Pay for Performance Alignment: ISS' Quantitative and Qualitative Approach," dated Dec. 20, 2011. The white paper focuses on the ISS's 2012 perspective regarding the alignment between compensation and performance for public companies.

In response to the 2012 ISS proxy voting guidelines, we offer public companies the following suggestions:

Companies should consider the mix of performance-based compensation relative to total compensation and whether the performance measures associated with wealth accumulation link to or align with shareholder return over the same performance period. Although some companies may hesitate to disclose long-term incentive performance measures in light of potential competitive disadvantages, we would encourage companies to reflect on their position and, whenever possible, embrace the...

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