ISS 2012 Voting Guidelines


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Institutional Shareholder Services Inc., or ISS, released its voting guidelines for the 2012 proxy season recently. ISS voting guidelines are important because they influence how institutional investors will vote at next year’s shareholders meetings. More details about these guidelines will be disclosed today by ISS; in particular, more information will be provided about ISS' new policies on say-on-pay (including board responsiveness), approach to proxy access proposals and the alignment between pay and performance.


ISS has announced it will construct its own peer groups this year to enhance its evaluation of executive pay. Peer groups will be determined by using market capitalization, revenue (or assets for financial firms) and GIC codes, or Global Industry Classifications. Peer groups should range in size from 14 to 24 companies. ISS will also evaluate pay for performance in a longer term context this year. The following are factors ISS will analyze as part of their review:.

  • the company’s Total Shareholder Return (TSR) rank and the total CEO’s pay rank within a peer group, as measured over 1- and 3-year periods (weighted 40%/60%);
  • the multiple of the CEO’s total pay relative to the peer group median; and
  • the trend in CEO pay and how it aligns to company TSR over the prior five fiscal years.

Where alignment between pay and performance appears to be weak, ISS will conduct further analysis prior to issuing its recommendation. Companies that received shareholder approval of 70% or less of votes cast on last year’s say on pay votes should expect heightened scrutiny in 2012, with the highest level of scrutiny focused on companies who received less than 50% approval. Next year, Dodd-Frank requires companies to disclose in their proxies what actions they have taken as a result of last year’s say on pay vote. ISS will take into account these disclosures as well as disclosures companies make about specific efforts they have taken to engage institutional investors. Compensation Committee members and full boards need to take note of these new policies as they may impact voting recommendations.

As for the peer groups, it is not known yet whether ISS will disclose these peer groups and it is likely companies will not get a lot of notice of their peer group in advance of ISS issuing its voting  recommendations. The creation of a peer group is a major challenge for companies, even more so when that peer group is established by an external group. ISS will begin applying these updated policies to shareholder meetings on or after February 1, 2012. You can find further details about these new policies by clicking here:

Other important governance/proxy developments underway include listing standards for compensation committees and compensation consultants, CEO pay ratio, clawbacks, proxy plumbing, etc. – all remain on the SEC's radar. With the 2012 proxy season fast approaching, we invite you to view this recent webcast put together by the NYSE which addresses much of what you need to know to be prepared (link: 

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