The NASPP Blog

ISS (formerly RiskMetrics, which was formerly ISS–how many times can one company change its name) released updates to its corporate governance policy in late November.

In the spirit of no news is good news, most of my readers will be relieved to hear that the policy doesn’t seem to change much with respect to stock compensation. ISS introduces a cap on the amount that burn rate maximums can change (up or down) from year to year; changes will be limited to a maximum of 2 percentage points difference from the prior year’s maximum burn rate. This is nice, but unless I’m missing something here, it doesn’t seem that significant.

Problematic Pay Practices and Say-on-Pay

ISS identifies a number of “problematic pay practices.” If a company employs these practices, in the past, ISS might have recommended voting against or withholding votes for compensation committee members or voting against a company’s stock compensation plan. Now, however, ISS has another weapon in its arsenal: Say-on-Pay. Problematic pay practices may now result in ISS recommending that shareholders vote against the company’s executive compensation proposal.

Stock compensation-related practices that ISS specifically identifies as problematic include:

• Paying dividends on unvested performance awards
• Multi-year guarantees for stock awards or other equity compensation
• Repricing or otherwise exchanging underwater stock options without shareholder approval
• Tax gross-ups on restricted stock

Past governance policy updates have specifically mentioned mega grants as problematic as well. While these grants aren’t mentioned this year, I expect that they are still a concern for ISS. I’m sure you all remember how I feel about mega grants.

In another significant change, where companies have problematic pay practices, ISS has revised its policy to no longer allow companies to avoid a negative recommendation by merely committing to eliminate them in the future.

Burn Rates–An Opportunity?

ISS has not released the maximum burn rate tables yet for 2011.  Where a company’s average burn rate for the past three years exceeds the maximum allowable for its industry (or 2%, if higher), ISS will recommend against proposals for new stock plans or allocations to existing plans. 

Once the burn rate tables are released (expected any day now), companies will know whether their three-year average is coming in low or high.  If low, I wonder if this might be an opportunity to make some quick grants. For example, let’s say a company is planning to ask for more shares next year–enough that it doesn’t expect to have to request another allocation for at least three years.  If the company realizes that its three-year average burn rate is low, would it make sense to accelerate some of next year’s grants into this year (assuming the company has enough shares available, of course), so the grants won’t be included in the average four years down the road, when the company might conceivably need to ask for more shares? 

I’m just throwing the idea out there; I admit that, in practice, a lot of stars would have to align perfectly for this to make sense.  It probably isn’t that realistic of a strategy for most companies. 

Post Press Releases to the NASPP Website
I’m excited to announce that we have enhanced the online NASPP vendor hall to allow our online exhibitors to post press releases. The press releases will appear on the NASPP home page and in the vendor hall.  We already have our first press released posted by Morgan Stanley Smith Barney!  For more information, contact naspp@naspp.com.

Just a Couple of Weeks Left to Get your Free Conference Session Audio
All NASPP memberships expire on a calendar-year basis. Renew your membership by Dec 31 and you’ll qualify to receive the audio for one NASPP Conference session for free!  Don’t wait any longer–the new year will be here before you know it!

This offer is also available to anyone the joins the NASPP before December 31–tell all your friends!

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 I keep an ongoing “to do” list for you here in my blog. 

• Purchase the audio for the 18th Annual NASPP Conference.
• Vote for Broc & Dave’s blog.
• Complete the Compliance-O-Meter quiz on Risk Management.
• Take the “Question of the Week” challenge.
• Renew your NASPP membership for 2011 (if you aren’t an NASPP member, join today).  Renew or join by Dec 31 to qualify to receive the audio of one NASPP Conference session for free.
• Local NASPP chapter meetings are wrapping up for the year.  Don’t miss the meetings in Kansas/Missouri, Los Angeles, Phoenix, and Sacramento.

– Barbara