On January 25, 2012, Institutional Shareholder Services Inc. (ISS) issued Frequently Asked Questions (FAQs)10 on a few executive compensation issues, including pay for performance and management sayon- pay responsiveness. These FAQs clarify certain ISS views expressed in its 2012 updates to proxy voting guidelines and white paper focused on ISS’ new methodology of evaluating pay for performance alignment.
For example, one of the FAQs explains the impact an adverse pay-for-performance recommendation might have on equity plan proposals. ISS may recommend a vote AGAINST the equity plan if a significant portion of the CEO’s misaligned pay is attributed to non-performance-based equity awards, and the CEO is one of the participants in the plan. In addition, the recommendation of a vote AGAINST the equity plan may depend on factors such as:
- magnitude of pay misalignment;
- contribution of non-performance-based equity grants to overall pay; and
- the proportion of equity awards granted in the last three fi scal years concentrated at the named executive offi cer level.
One of the FAQs states that in the case of a low or negative vote on a prior year’s management say-on-pay (MSOP) proposal, ISS plans to give a negative voting recommendation on the election of directors comprising the compensation committee (and/or full board in rare cases) under two conditions: (i) if an issue is deemed suffi ciently egregious to warrant that; and (ii) if ISS determines that the board has failed to respond adequately to issues that led to high opposition to the prior MSOP proposal.