On October 18, Institutional Shareholder Services (ISS) published for comment draft updates to its benchmark proxy voting policies for 2012 . The draft policies cover topics relating to board governance, director and executive compensation and environmental and social issues.
Of particular interest, one of the proposed changes published by ISS would introduce a new methodology to evaluate the alignment between a company's shareholder return and executive pay. While currently focused on U.S. issuers, the proposal states that the new methodology is also being considered for Canada.
Specifically, the new approach would seek to identify companies that have demonstrated "strong", "satisfactory" or "weak" alignment between total shareholder return and CEO pay over an extended period. A quantitative analysis would be performed to measure relative alignment and absolute alignment between pay and company performance, with companies showing a weak alignment receiving a further qualitative review. According to ISS, the proposed approach is designed "to better address market needs for robust pay-for-performance evaluations."
ISS is accepting comments on the draft policies until October 31 and expects to release final versions of its policies during the week of November 14. ISS released the results of its annual policy survey, which informed its policy-making process, in September.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
