ISS 2011-2012 Policy Survey: Results

News Brief

By Amy Wood

ISS recently announced the results of its annual policy survey after receiving responses from 87 US institutional investors and 160 US issuers: . Here are a few of the highlights:

Executive Compensation Remains a Hot Topic for 2012: 61% of investors (and 60% of issuers) cited executive compensation as one of the top three governance topics for the coming year.

Less than 50% Opposition to Say on Pay Should Trigger a Board Response to Improve Pay Practices: 72% of investor respondents and 52% of issuer respondents indicated that an explicit response from the board regarding improvement to pay practices should be made at opposition levels at more than 30% and more than 40%, respectively.

Institutional Investors Oppose Single-Trigger Equity Vesting Acceleration in Equity Plans: An overwhelming majority of investor respondents do not consider automatic accelerated vesting of outstanding grants upon a change in control or accelerated vesting at the board's discretion after a change in control to be appropriate; however, investor respondents agreed that accelerated vesting in certain circumstances after a change in control (e.g., if awards are not converted or replaced by a surviving entity) is appropriate.

Investor Respondents Reluctant to Indicate that Positive Factors Should Mitigate an Otherwise Excessive Overhang Cost of an Equity Plan Proposal: Issuer respondents, on the other hand, indicated that positive factors (e.g., low average burn rate, double-trigger vesting acceleration, robust vesting, reasonable plan duration, etc.) should mitigate an excessive overhang cost.

Investor Respondents Indicated that Equity Plan Proposals Submitted for the First Time After an IPO Solely for Section 162(m) Purposes Should Be Subject to the Regular Equity Plan Policies: 80% of investor respondents indicated that the same standard of review should apply even if no new shares are requested.

Pay for Performance Is Still a Significant Concern: An overwhelming majority of investor respondents considered both pay that is significantly higher than peer pay levels and pay levels that have increased disproportionately to the company's performance trends to be very relevant. A majority of investor respondents indicated that discretionary annual bonus awards can be sometimes problematic if the awards are not aligned with company performance.

Institutional Investors Favor an Independent Board Chair: 70% of investor respondents indicated that companies should adopt a policy of appointing an independent chair after the current (combined) CEO/chair leaves the position.

Please feel free to contact Thomas Welk or Amy Wood with any questions or if there's anything you'd like to further discuss. We'll continue to keep you posted regarding the ISS policy update process.

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