Please Provide Comments for ISS- Equity Plans Related to Section 162(m)

Equity Plans Related to Section 162(m) (U.S.)

Background and Overview

Under a proposed ruling related to
Section 162(m) of the Internal Revenue Code, recent IPO companies will need to
obtain shareholder approval before awarding certain performance-based
restricted stock units ("RSUs") to named executive officers in order
to qualify them as performance-based compensation. Therefore, we anticipate an
increase in such proposals from recent IPO companies.

ISS has generally recommended that
investors support equity plan proposals solely for Section 162(m) compliance
purposes, due to the favorable tax deduction on performance-based compensation
for named executive officers that companies may receive. However, such support
may not be warranted when equity plans contain shareholder unfriendly features,
such as repricing provisions, evergreen share replenishments, liberal change in
control definitions, etc. Therefore, such support may result in a more adverse
and lasting impact on shareholders than a potential loss of tax deductions
related to named executive officer grants.

Key Changes Under Consideration

ISS is proposing the following vote
recommendation as a policy update:

Vote CASE-BY-CASE with respect to all
IPO companies that seek shareholder approval of their equity plan proposals for
the first time, to qualify for favorable tax treatment under the provisions of
Section 162(m). A full equity plan analysis, including consideration of total
shareholder value transfer, repricing, burn rate analysis (if applicable), and
liberal change in control, will be conducted. Other factors such as pay for
performance or problematic pay practices as related to Management Say on Pay
may be considered, if appropriate.

Intent and Impact

While shareholders would benefit from
the tax deduction that newly public companies wouldreceive under Section
162(m), they should have an opportunity to fully evaluate such companies'
equity plan proposals. The proposed policy would allow shareholders to identify
if any problematic features exist under the plan and whether such approval
solely for Section 162(m) for the first time would be beneficial. 

ISS anticipates continuing to support
the vast majority of Section 162(m) proposals that do not seek additional
shares.  Most equity plans submitted for Section 162(m) approval contain
shareholder friendly features, such as prohibition on repricing/option
exchanges, fixed share requests, etc. Therefore, ISS anticipates that the
proposed policy change would have minor impact.

Request for Comment

Please feel free to add any additional
information or comments on the proposed policy change.  In addition, ISS
is specifically seeking feedback on the following:

• Should the potential tax
  deduction on performance-based compensation for named executive officers
  outweigh the adverse impact of problematic features in equity plans for
  162(m) proposals from new IPO companies?

• If shareholders do not support
  the 162(m) proposal at the newly public company, the company would not be
  able to obtain tax deduction for performance-based compensation. Should
  the Compensation Committee be held accountable for the problematic design
  in the equity plan instead?

To submit a comment, please send via
e-mail to policy@issgovernance.com.Please indicate your name and
organization for attribution. While ISS will consider all feedback that it
receives, comments will not be published without attribution.

All comments received will be published
as received, unless otherwise requested in the body of the e-mail submission.