United States: ISS Issues Final Policies For 2012

On November 17, 2011, Institutional Shareholder Services Inc. ("ISS") issued its final U.S. Corporate Governance Policy for 2012. The policy includes changes from the ISS 2011 policy, which may affect ISS's recommendations with respect to say-on-pay votes on executive compensation, and the election of directors of public companies. The following analysis summarizes the changes made to the ISS policy with respect to executive compensation as they apply to the upcoming 2012 proxy season.

Evaluation of Executive Pay (Say-on-Pay)

Previously, ISS assessed pay-for-performance alignment by examining a company's one-year and three-year total shareholder return ("TSR") relative to all other companies in the same 4-digit Global Industry Classification Standard ("GICS") industry group, and by considering other factors such as the year-over-year change in the CEO's total pay and five-year trends in company TSR and CEO pay. The ISS proposal includes changes to the peer group used by ISS to analyze pay for performance, quantitative evaluation of pay-performance alignment on a relative basis against the peer group and an absolute basis against the company's historic TSR, and qualitative review of other factors for companies that demonstrate a weak pay-for-performance alignment.

  • Peer Group. Companies will no longer be evaluated against all companies in the 4-digit GICS industry group, but will instead be evaluated against a smaller peer group that is similar in market cap, revenue (or assets) and industry.
  • Peer Group Alignment. The degree of alignment between the company's TSR rank and the CEO's total pay rank within the peer group will be evaluated on a relative basis over one and three years (weighted 40/60, to put more emphasis on the longer term). The multiple of the CEO's total pay relative to the peer group median will be quantified, to identify cases where a high-performing company may be "overpaying."
  • Absolute Alignment. CEO pay alignment will be evaluated on an absolute basis against the company's TSR over each of the prior five fiscal years. This will be assessed as the difference between the trend in annual CEO pay changes and the trend in annualized TSR during the prior five-year period.
  • Qualitative Review. Companies that demonstrate strong or satisfactory quantitative alignments will generally receive a positive recommendation (in the absence of other pay-related issues), while companies demonstrating weak alignment will receive further qualitative review to determine a final vote recommendation. Factors considered may include:
    • The ratio of performance-based to time-based equity awards
    • The overall ratio of performance-based compensation to total compensation
    • The robustness of disclosure and rigor of performance goals
    • The company's peer group benchmarking practices
    • Actual results of financial/operational metrics, such as growth in revenue, profit, and cash flow, both absolute and relative to peers
    • Secial circumstances, such as a new CEO in the prior fiscal year or equity grant practices
    • Any other factors deemed relevant

Equity Plans of Newly Public Companies

In the executive summary to its final 2012 policies, ISS stated that equity plans coming to a shareholder vote for the first time after a company's initial public offering will be evaluated under the same guidelines as a standard equity plan, even if no new shares are being requested. ISS will make its recommendation based on evaluation of all aspects of the particular plan, including consideration of total shareholder value transfer, repricing, burn rate (if applicable), and any liberal change-in-control provisions. Other factors, such as pay-for-performance or problematic pay practices as related to say-on-pay, may be considered if deemed appropriate.

In explaining its rationale for this change, ISS stated that it anticipates continuing to support the majority of the equity plans of newly public companies, but that its ultimate recommendation is intended to ensure that any adverse equity plan provisions would not have a more detrimental potential impact on shareholders than the potential loss of the company's tax deductions related to named executive officer grants. The recently proposed regulations under Internal Revenue Code section 162(m), requiring newly public companies to obtain shareholder approval before awarding certain performance-based restricted stock units to named executive officers, will likely increase the impact of the new ISS rule as more plans are presented for shareholder approval.

Board Response to Say-on-Pay Vote

For any company that received less than 70 percent support on its prior say-on-pay vote, ISS will make its recommendation on a case-by-case basis with respect to the election of compensation committee members (or, in rare cases where the full board is deemed to be responsible, the full board) and the current say-on-pay proposal. ISS will take into account:

  • The company's response, including disclosure of engagement efforts with major institutional investors regarding the compensation issue(s), specific actions taken to address the issue(s) that appear to have caused the significant level of against votes, and other recent compensation actions taken by the company
  • The company's ownership structure
  • Whether any prior issues of concern are recurring or one-time
  • The level of opposition (support of less than 50 percent warrants the highest degree of responsiveness)

Board Response to Say-on-Pay Frequency Vote

The ISS has adopted a new policy and vote recommendation with respect to the frequency of the say-on-pay vote implemented by the board:

  • ISS will recommend a "withhold/against" vote on all incumbent director nominees if the board implements the advisory say-on-pay vote on a less frequent basis than the frequency that received the majority of votes cast by shareholders.
  • ISS will make its recommendation on a case-by-case basis if the board implements the advisory say-on-pay vote on a less frequent basis than the frequency that received a plurality, but not a majority, of votes cast by shareholders. ISS will take into account:
    • The board's rationale for choosing a frequency that is different from the frequency that received a plurality
    • The company's ownership structure
    • ISS's analysis of the company's executive compensation and whether there are compensation concerns or a history of problematic pay practices
    • The previous year's support level on the company's say-on-pay proposal
    • The difference between the frequency adopted and the frequency supported by shareholders

This article is presented for informational purposes only and is not intended to constitute legal advice.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Drinker Biddle & Reath LLP
Fried Frank Harris Shriver & Jacobson
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Drinker Biddle & Reath LLP
Fried Frank Harris Shriver & Jacobson
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions