The Advisors' Blog

– Paul Schulman, MacKenzie Partners

Glass Lewis recently concluded a client-only presentation regarding updates to their policies for 2011 and what they see as trends for the upcoming year. As you probably know, Glass Lewis will not speak to you about your proxy, taking the approach that “if you have something you want us to consider, put it in a public filing.” They recently purchased the smaller advisory firm Proxy Governance and depending on the makeup of your shareholder base, you should be aware of their policies and likely vote recommendation if you’re facing a potentially close vote.

Courtesy of Glass Lewis, here is a summary of their presentation (the full presentation is not publicly available). Some of the points you might pay attention to:

1. What will drive their decision to vote Against Say on Pay votes?
-Misalignment of pay with performance (P4P grade of D or F)
-Insufficient disclosure
-Poorly formulated peer group(s)
-Guaranteed bonuses & high fixed pay
-Poorly-designed incentive plans with excessive payouts and unchallenging goals
-Too much reliance on time-vesting equity awards
-Egregious contractual commitments (tax gross-ups, golden parachutes, death benefits)
-Internal pay inequity
-Excessive discretion afforded the board in granting awards and adjusting metrics

2. When will they go beyond say on pay and vote against comp committee members?
-Behavioral issues: For example, option repricing without shareholder approval, or the granting of excessive and unjustified golden handshakes or golden parachutes
-Sustained Poor Pay-for-Performance: Judged by a history of “D”s and “F”s in the GL model

3. What were the major U.S. Policy updates?
Most were relatively minor and won’t apply to a broad spectrum of companies. Some of the more noteworthy were:
-Classified Boards: If we maintain concerns with affiliates or insiders who are not up for election, we will consider recommending voting against such directors at their next election if the concerning issue is not resolved.
-Excessive Audit Committee Memberships: We may exempt certain audit committee members from our standard threshold (i.e. serving on more than 3 public company audit committees) if, upon further analysis of relevant factors, we can reasonably determine that the audit committee member is likely not hindered by multiple audit committee commitments.
-Board Interlocks: We will also evaluate multiple board interlocks among non-insiders (i.e. multiple directors serving on the same boards at other companies) for evidence of a pattern of poor oversight.
-Stock Option Repricings: We recommend to vote against all members of the compensation committee when the company completed a “self tender offer” without shareholder approval within the past two years.