Corporate Governance

Shearman & Sterling LLP Introduction | 3 Also notable was the increased use of graphics, tables and other visual aids in the CD&A. Another disclosure trend was the use of an upfront "proxy summary" enabling shareholders to glean in one spot all essential information in the proxy statement. These proxy summaries focused on all actions to be taken at the annual meeting and were not limited to executive compensation matters. Say-On-Pay Voting in 2011 The Dodd-Frank Act gave shareholders the right to cast a non-binding advisory vote on an issuer's executive compensation as disclosed under Item 402 of Regulation S-K. Shareholders must have the right to cast this vote at least once every three years. These requirements apply to all shareholder meetings held on and after January 21, 2011. Eighty-eight Top 100 Companies held say-on-pay votes in 2011, and say-on-pay resolutions were passed at all but two of these companies. These results are in line with those seen overall this proxy season where say-on-pay resolutions failed at fewer than 40 companies. In general, the say-on-pay proposals received overwhelming support from shareholders with an average approval rating of 91%. Influence of Proxy Advisors The 2011 proxy season highlighted the influence of Institutional Shareholder Services ("ISS"), Glass Lewis & Co. ("Glass Lewis") and other proxy advisory firms on voting results. ISS gave a negative recommendation to approximately 12% of the overall 2011 say-on-pay proposals (including each of the companies with a failed say-on-pay vote). While the resolution nonetheless passed at a majority of these entities, companies that received a negative recommendation from ISS generally obtained lower margins of shareholder support than those that received positive recommendations from ISS. Proxy advisors generally formulate their voting recommendations based on compensation practices that they deem egregious or problematic. These practices include "single-trigger" change-in-control payments, liberal change-in-control definitions, income tax gross-ups and excessive severance and pension benefits. One apparent key to a positive recommendation appears to be a strong alignment between CEO pay and company performance. ISS focuses on one-year and three-year total Introduction

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