On November 20, RiskMetrics Group released its 2010 updates to its proxy voting guidelines. The publication of the guidelines follows a comment period on draft policies that ended on November 11. Notably, updates to its Canadian benchmark corporate governance policy were also released. Citing the recent attention in Canada on slate ballots and executive compensation, the updates focus particularly on these two issues.
With respect to slate ballots, RiskMetrics will now recommend a withold vote on directors with slate ballots where it has identified corporate governance practices falling short of best practice or where there exist concerns regarding compensation practices and the alignment of pay with performance. Such governance practices that, in addition to a slate ballot, could result in a withhold recommendation include: the participation of insiders on key committees, the lack of a separate nominating or compensation committee, a disconnect between pay and performance, disclosure concerns, or a board or key committee that has less than a majority of independent members. The policy, however, will not apply to contested director elections. Compelling reasons against the application of the policy are also provided, including a company's recent graduation to the TSX or a commitment to replace slate elections with individual director elections within a year. Meanwhile, RiskMetrics also stated that under "extraordinary circumstances", it may recommend a vote against or withhold in certain cases, including material failures of governance or certain egregious actions related to the director's service on other boards.
Respecting executive compensation, RiskMetrics will now recommend that management proposals for an advisory shareholder vote on compensation (say-on-pay) be considered on a case-by-case basis. RiskMetrics provides general principles regarding pay-for-performance and provides a list of factors to be considered in determining how to vote on managements' say-on-pay proposals. Such factors include: the evaluation of peer group benchmarking, an assessment of compensation components, the clarity of disclosure and the mix of fixed versus variable pay.
The definition of excessive severance payments is also being changed in RiskMetrics' policy respecting problematic pay practices. Severance payments are currently considered excessive if they are greater than three times cash compensation, and the threshold will now be dropped to two times cash compensation. A section on risk-mitigating pay practices is also being added to the policy. In the case of problematic compensation practices, RiskMetrics will generally recommend a vote against management advisory vote proposals on say-on-pay and/or a withhold vote from compensation committee members. Equity plans considered to be vehicles for problematic compensation practices will also garner a vote against.
Further, while RiskMetrics stated that a vote is generally based on a "preponderance of problematic elements", certain practices may lead to a withhold or against vote on a stand-alone basis. Such practices may include: a general omission of timely information necessary to comprehend the rationale for compensation process and outcome, an overly generous new hire package for a new CEO, contracts containing multi-year guarantees for salary increases and bonuses, interest free or low interest loans to employees for exercising options, excessive severance or change-in-control provisions, unjustifiably large bonus payouts, excessive perks and problematic option granting practices.
RiskMetrics also released policy updates for the United States, Europe and international markets.
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