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May 08, 2012 | Barbara Baksa

News on the Proxy Advisors

For today's blog, I have a couple of updates related to Glass Lewis and ISS.

Through a Glass (Lewis) Darkly
While ISS has been somewhat forthright about its voting policies, the methodologies employed by Glass Lewis to evaluate management proposals have always been a black box. Recently, however, Glass Lewis launched a new "Issuer Engagement Portal" to provide insight into their decision-making process when making vote recommendations on proxy ballots.

The portal includes both "US Abridged Guidelines" and "Continental Europe Abridged Guidelines." A few highlights from the US Abridged Guidelines relating to stock options:

  • Companies should seek additional shares only when needed and the number of shares requested should be small enough that the company will need an additional allocation of shares within three to four years (or less).
  • The annual cost of the plan should be reasonable as a percentage of financial results and the overall value of the company and in comparison to peers. Plans that are relatively expensive and that provide grants solely to senior executives and board members are a particular concern.
  • The intrinsic value received by option grantees in the past should be reasonable compared with the financial results of the business.

The portal also includes Issuer FAQs and a short summary of Glass Lewis' Equity-Based Compensation Analysis, which discusses their analysis relating to program size, cost, and features.

While this is no where near the level of transparency provided by ISS and still leaves many questions unanswered, it is at least a step in the right direction.

ISS: Do as We Say, Not as We Do
The disadvantage about disclosing your voting polices is that others can then apply them to you--or, in this case, to ISS's parent company, MSCI. Exequity has prepared an in-depth analysis of how MSCI's executive compensation programs would fare under ISS's policies (ISS does not issue a report on MSCI due to the inherent conflict of interest in reporting on their own parent). Exequity found a number of areas where MSCI engages in practices that ISS criticizes:

  • Not splitting the CEO and Chairman of the Board roles;
  • Not having stock holding requirements, stock ownership guidelines, or a clawback policy;
  • Not using preset performance goals for the annual bonus plan (the plan is discretionary);
  • Not providing the specific performance goals for the performance-based equity awards until after the two-year performance period ends;
  • Aiming to compensate named executive officers at the "higher end of market practice"; and
  • Granting equity awards with single-trigger change-in-control provisions.

More at the NASPP Conference
This year's NASPP Conference will feature a session that will sort out fact from fiction on the proxy advisor policies and help you evaluate how critical it is for your company to comply with ISS and Glass Lewis policies.  Look for more information when we announce the full program in a few weeks.  The 20th Annual NASPP Conference will be held in New Orleans from Oct 8-11--register by May 31 for the early-bird rate. 

NASPP "To Do" List
We have so much going on here at the NASPP that it can be hard to keep track of it all, so we keep an ongoing "to do" list for you here in our blog. 

- Barbara  

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