November 19, 2010
ISS Issues 2011 Policy Updates
– Broc Romanek, CompensationStandards.com
Just after I heard Pat McGurn speak this morning at the ABA Fall Meeting, ISS issued it’s 2011 Policy Updates. Courtesy of Ed Hauder of Exequity, here is a brief summary of the Updates that relate to executive pay:
– Equity Compensation Plans: Burn Rate–ISS is making a change to the Burn Rate policy so that the burn rate caps cannot increase or decrease by more than two (2) percentage points from year-to-year. The 2011 Burn Rate table will be released as part of ISS’ 2011 Summary Guidelines in December 2010.
– Say When on Pay Vote–ISS will support annual advisory votes on compensation, as its draft policies released at the end of October suggested. However, it still remains unclear what ISS will do if a company chooses a different frequency or the shareholder vote supports a different frequency.
– Problematic Pay Practices–ISS is revising the list of “major” problematic pay practices which alone could trigger application of the policy. The “major” problematic pay practices are now identified as the following:
– Repricing or replacing of underwater stock options/SARs without prior shareholder approval (including cash buyouts and voluntary surrender of underwater options);
– Excessive perquisites or tax gross-ups, including any gross-up related to a secular trust or restricted stock vesting;
– New or extended agreements that provide for:
1. CIC payments exceeding 3x base salary and average/target/most recent bonus;
2. CIC severance payments without involuntary job loss or substantial diminution of duties (Single” or “modified single” triggers);
3. CIC payments with excise tax gross-ups (including “modified” gross-ups).
– Additionally, ISS is slightly reworking how the presence of problematic pay practices will influences its vote recommendations. As before in such cases,
– ISS will recommend against management say on pay (MSOP) proposals,
– Then ISS will recommend against/withhold on compensation committee members (or in rare cases the full board) in (i) egregious situations, (ii) when no MSOP item is on the ballot, or (iii) when the board has failed to respond to concerns raised in prior MSOP evaluations, and/or
– ISS will recommend against an equity incentive plan proposal if excessive non-performance-based equity awards are the major contributors to a pay-for-performance misalignment.
– Problematic Pay Practices-Commitments–ISS will no longer accept future commitments on problematic pay practices as a way of preventing or reversing a negative vote recommendation.
– Voting on Golden Parachutes–ISS sticks pretty close to the draft policy it issued in late October 2010. Such proposals will be evaluated on a case-by-case basis, but the presence of certain practices could lead ISS to recommend against the proposal.