Resources: Publication

online

What Should Public Companies Know About the Proxy Advisors?
"What Should Public Companies Know About the Proxy Advisors?" ONSecurities.com, November 13, 2011

(The following post originally appeared on ONSecurities, a top Minnesota legal blog founded by Martin Rosenbaum to address securities, governance and compensation issues facing public companies.)

November 13, 2011

In the second year of mandatory Say-on-Pay votes on public company compensation, the proxy advisory firms such as ISS and Glass Lewis will be like the popular kids on Facebook: it’s important to get them to “like” the company’s postings. In other words, their positive recommendations are an important factor in winning the Say-on-Pay vote by the widest possible margin.

Therefore, one of the best parts of attending the recent Proxy Disclosure Conference sponsored by CompensationStandards.com (subscription site) was attending the session called “The Proxy Advisors Speak”, featuring Carol Bowie of ISS and David Eaton of Glass Lewis. Seeing these individuals speak was like meeting the people behind the Facebook profile pictures.

These close encounters reinforced my conclusion that, whether or not you agree with their guidelines or recommendations, the representatives are serious professionals doing their best to navigate a flood of information and help institutional shareholders figure out how to vote. In other words, proxy advisors are people too.

Here are some of the important observations by Carol Bowie of ISS:

  • ISS has a team of trained analysts preparing for the proxy season, and every report passes through at least two analysts.
  • ISS tries to deliver research reports at least 21 days before the annual shareholders’ meeting; however, this can be 13 days during proxy season or less in contested meetings. S&P 500 companies receive draft reports shortly before publication to allow them to check the facts.
  • The compensation discussion and analysis (CD&A) section of the proxy statement should include an executive summary that outlines the overall structure of the compensation program. Also, it’s helpful if the CD&A provides key information in one place about short-term and long-term compensation programs, including why the company uses particular metrics; what were the targets and how were they determined; and what were the company’s financial results and the associated awards?
  • ISS is updating its policies for evaluation of Say-on-Pay votes in 2012, and the final policy updates will be released before Thanksgiving. As shown by its draft of the updated policies, ISS will still focus heavily on total shareholder return (TSR) (essentially, stock price) in evaluating the “performance” component of pay for performance. ISS is trying to strike a new balance between short-term and long-term factors, using a combination of one-, three- and five-year analyses.
  • In assessing compensation programs in 2012, ISS will focus a high level of scrutiny on companies whose proposals received less than 50% support from votes cast. In addition, for companies that received less than a 70% positive vote, surveyed institutional investors indicated that they expect an explicit response from the board with respect to shareholder engagement and actions taken as a result of the vote. ISS will likely give the Say-on-Pay votes of those under-70% companies more scrutiny as well.

In a future post, I’ll share observations of the Glass Lewis representative. Hopefully, these insights can help companies be “liked” in the upcoming proxy season.

DISCLAIMER
Thank you for your interest in contacting us by email.

Please do not submit any confidential information to Maslon via email on this website. By communicating with us we are not establishing an attorney-client relationship, and information you submit will not be protected by the attorney-client privilege and cannot be treated as confidential. A client relationship will not be formed until we have entered into a formal agreement. You should also be aware that we may currently represent parties whose interests may be adverse to yours, and we reserve the right to continue to represent them notwithstanding any communication we receive from you.

If you would like to discuss possible representation, please call one of our attorneys directly or use our general line (p 612.672.8200). We can then fully discuss our intake procedures and, if appropriate, introduce you to an attorney suited to assist with your matter. Alternatively, you may send us an email containing a general inquiry subject to these terms.

If you accept the terms of this notice and would like to send an email, click on the "Accept" button below. Otherwise, please click "Decline."