As part of its 2012 policy formulation process, ISS announced the opening of an annual comment period for 2012 proxy voting policies.10 The following is a summary of certain issues on which ISS is seeking comment:

Pay-for-Performance. ISS suggested a new methodology to identify pay-for-performance alignment over a sustained period, which includes a quantitative pay-for-performance analysis based on peer and absolute (over a fi ve-year period) alignment and, under some circumstances, qualitative review of pay-for-performance compensation.11 If the peer and absolute alignment appears to be weak, ISS suggested further qualitative review to consider factors that include, but are not limited to the following:

  • the ratio of performance to time-based equity awards;
  • the overall ratio of performance-based compensation;
  • the robustness of disclosure and rigor of performance goals;
  • actual results of fi nancial/operational metrics, such as growth in revenue, profi t, cash fl ow, etc., both absolute and relative to peers; and
  • special circumstances related to, for example, a new CEO in the prior fi scal year or equity grant practices (e.g., biannual awards).

Say-on-Pay Proposal. ISS issued a policy update that clarifi es that ISS will issue recommendations on a case-by-case basis on compensation committee members and the say-on-pay proposal if votes on the company’s prior say-on-pay proposal refl ected signifi cant opposition.12 Moreover, the recurrence of previously identifi ed compensation issues or newly identifi ed compensation concerns may result in a recommendation of an against vote on the say-on-pay proposal and the compensation committee members. In addition, ISS suggested that when a signifi cant number of shareholders oppose the management’s say-on-pay proposal, the company should include disclosure of its outreach efforts to major institutional investors as well as concrete actions that it has taken or will take to address the compensation issues that resulted in signifi cant opposition votes.

Say-on-Pay Frequency Proposal. ISS proposed to withhold votes or vote against all incumbent director nominees if the board implements an advisory vote on executive compensation on a less frequent basis than the frequency which received the majority of votes cast at the shareholders’ meeting and to vote on case-by-case basis if the board implements an advisory vote on executive compensation on a less frequent basis than the frequency which received a plurality, but not majority, of votes cast at the shareholders’ meeting.13

Although the foregoing policies are subject to the comment period, which closes on November 7, 2011, they identify issues that ISS will focus on in making voting recommendation to its clients during the 2012 proxy season. ISS expects to release fi nal policy updates for clients in November 2011 and issue the updated Global Policy Summary and Concise Guidelines in December 2011.