Publications

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RiskMetrics Group (RMG) has published a set of FAQs relating to the new proxy disclosure rules adopted by the Securities and Exchange Commission in December 2009.

RMG provides recommendations to institutional investors regarding director nominees, equity plan proposals and other matters presented to stockholders, including stockholder proposals. Each year RMG issues voting guidelines to provide issuers and institutional investors with information about RMG’s policies on issues relating to corporate governance matters, and the matters that might affect their vote recommendations. RMG’s 2010 Voting Guidelines were issued on January 8, 2010.

These most recent FAQs from RMG provide updated guidance on how the research department will view issues raised by the SEC’s new disclosure rules in preparing vote recommendations for the 2010 proxy season. To read our recent Alerts on the new proxy disclosure rules, please click here, here and here.

The new FAQs provide guidance on the level of disclosure RMG will expect companies to provide related to new Item 402(s) of Regulation S-K, which requires narrative disclosure on a company’s compensation policies and practices as they relate to its risk management. The new rule requires issuers to discuss compensation policies and practices for its employees if these policies and practices create risks that are reasonably likely to have a material adverse effect on the company. The new rule does not, however, require the issuer to state the negative – that is, that the issuer has determined that its compensation policies and practices do not create such a risk.

In the FAQ, RMG recognizes that companies will not typically provide the negative assurance that is not otherwise required (e.g., “we found no material adverse risks caused by compensation”). However, RMG does advise issuers that it expects them to “talk about their process and any mitigating features (such as clawbacks or bonus banks) that they have adopted.” RMG explains that it views this disclosure as an “opportunity for communication, not simply compliance” and that stockholders will be expecting a “reasonably substantive discussion” of the board’s processes in evaluating whether incentive compensation “motivates inappropriate risk-taking.” In light of this guidance, companies will need to decide whether to disclose the processes by which they conducted their analysis of risks from compensation policies, and what, if any, mitigating factors the company viewed as material in its disclosure determination, particularly any new provisions.

Another FAQ provides RMG’s view on how it will analyze compensation consultant fee disclosure as required by new Item 407(e)(3) of Regulation S-K. RMG indicates that during this proxy season it will not apply any formulas or any specific policy regarding the fees paid to compensation consultants. RMG does note that it will be analyzing this data after this proxy season and may develop policy guidelines at a later time.

The final FAQ relates to the certain new sections of Item 407 of Regulation S-K and disclosures on director qualification, diversity policies, and board leadership and oversight of risk management. RMG indicates that while this new disclosure “will not be determinative in any recommendation” it will be considered by RMG as part of its overall determination.