With proxy season approaching, public companies must consider their strategy for the second year of the mandatory say on pay advisory vote.

Even companies that passed last year’s vote with flying colors should prepare for the upcoming season with a fresh perspective, as the second season of say on pay will present new challenges. Some investors may have applied more relaxed standards to companies last year in recognition of the fact that mandatory say on pay was new. In addition, shareholders and proxy advisory firms may focus on a company’s response to the first mandatory say on pay vote, which was not an issue last year. Indeed, in its recently released 2012 draft policy changes, Institutional Shareholder Services (ISS) asked whether its voting recommendations should take into account a company’s response to receiving a majority but less than 70% support for its prior year’s say on pay vote. Further, an important factor in whether a company received a positive recommendation from the proxy advisory firms was the results of the total shareholder return (TSR) analysis described below and, accordingly, a change in performance can adversely affect the vote, even where compensation practices have not changed. Finally, ISS recently proposed revisions to its voting policies that may impact say on pay recommendations in the upcoming season.

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