ISS published its Proxy Voting Policy Updates for 2012 today. The final version does not appear to be dramatically different from the proposed version released in October. Today, I will blog on three key issues relating to executive compensation – and save two others (including the controversial peer group selection issue) for tomorrow:

  1. Under extraordinary circumstances, ISS will recommend a vote AGAINST or WITHHOLD from individual directors, members of a committee, or the entire board, due to material failures in the area of risk oversight at the company.
  2. Regarding the frequency of future Shareholder Say on Pay (SSOP) votes, ISS will recommend a vote AGAINST or WITHHOLD from the entire board of directors (except new nominees, who should be considered case-by-case) if the board implements an advisory vote on executive compensation on a less frequent basis than the frequency that received the majority of votes cast at the most recent shareholder meeting at which shareholders voted on the say-on-pay frequency.  ISS will recommend a vote AGAINST or WITHHOLD from the entire board on a case-by-case basis if the board implements an advisory vote on executive compensation on a less frequent basis than the frequency that received a plurality, but not a majority, of the votes cast at the most recent shareholder meeting at which shareholders voted on the say-on-pay frequency. 
  3. Where a company's SSOP proposal received the support of less than 70% of votes cast, ISS will recommend a vote AGAINST or WITHHOLD on Compensation Committee members (or, in exceptional cases, the full board), depending on the company's response, including:
    • disclosure of engagement efforts with major institutional investors regarding the issues that contributed to the low level of support;
    • specific actions taken to address the issues that contributed to the low level of support; and
    • other recent compensation actions taken by the company.

ISS also will take into account (i) the company's ownership structure, (ii) ISS' assessment of whether compensation issues are recurring or isolated, and (iii) whether the support level was less than 50%, which would warrant the highest degree of responsiveness.