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A significant majority over 72 percent of both investor and issuer respondents indicated that all elements of ISS’ outreach process policy survey, policy roundtables, and comment period

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2012-2013 Policy Survey Summary of Results

September 2012

About the Survey

For the past nine years, ISS has sought feedback on emerging corporate governance issues as a critical component of its annual policy formulation process ISS seeks input from both its institutional investor clients and the corporate issuer community, in order to get a better understanding of the breadth of financial market views on a range of topics including boards of directors, shareholder rights, and

executive compensation/remuneration

This year’s survey was conducted from July 24, 2012, through Aug 31, 2012 ISS’ institutional investor clients, as well as a broad global contact list of corporate issuers, were invited to participate in an online survey covering corporate governance developments worldwide Issuers and investors

completed the same survey

More than 370 total responses were received A total of 97 institutional investors responded

Approximately 71 percent of investor respondents were located in the United States, with the

remainder divided between U.K., Europe, Canada, and Asia-Pacific 273 corporate issuers responded,

with 79 percent of them located in the United States and the remainder divided between U.K., Europe, and Canada

Institutions-Category

*For institutions, size is measured by equity assets under

management or assets owned (in U.S dollars); For issuers, size is

measured by market capitalization (in U.S Dollars)

Key Findings

ISS Research

ISS’ outreach activities with respect to policy formulation and engagement are useful to both

investors and issuers A significant majority (over 72 percent) of both investor and issuer respondents

indicated that all elements of ISS’ outreach process (policy survey, policy roundtables, and comment period) for policy formulation were either “very useful” or “somewhat useful” to their organization

when developing voting policies or assessing governance practices

Likewise, a significant majority (over 72 percent) of both investors and issuers indicated that all

elements of ISS’ engagement process with issuers were either “very useful” or “somewhat useful” to their organization, considering the benefits of enhancing dialogue and providing additional information

on ISS reports

Top Governance Issues

Executive compensation is the top area of focus across the globe Investor respondents cite the issue

of executive compensation as the perennial top governance topic for the coming year Issuer

respondents also cited executive compensation as their top concern in North America and Europe and

as their second most commonly cited topic in both the Asia-Pacific and the Developing Markets

On a global basis, investors focused on board competence/director qualifications and board

independence Across every region, board competence and board independence were identified

among the three most important governance topics by investor respondents For issuer respondents, board competence was the third most commonly cited topic across every region

Issuers focus on risk oversight For issuer respondents, the most commonly cited topic in Asia-Pacific

and Developing Markets was risk oversight; this was the second most commonly cited topic in North America and Europe

A majority of both investors and issuers would consider nominee diversity with respect to skill sets to

be “very important” when evaluating a new nominee’s qualifications while gender/race diversity was most commonly cited as “somewhat important” by both issuers and investors

For investors, if a new board nominee’s experience, qualifications or skills raise concerns, a significant majority (82 percent) indicated that they would vote against the new nominee They were less inclined

to vote against the nominating committee or its chair Sixty-three percent indicated that they would not vote against the nominating committee and 52 percent of investors indicated that they would not vote against the chair of the nominating committee solely due to concerns about a new nominee's qualifications

U.S Compensation Practices

While ISS’ selection of peer groups for analysis of executive compensation invokes divergent views from investors and issuers, both agree that size matters when selecting peers Eighty-four percent of

investors and 74 percent of issuers indicated that an ISS-selected peer being within a specified size range of the target company (e.g between 0.5 and 2 times the company’s revenue) is a very or

somewhat relevant factor in selecting peers for a pay-for-performance comparison group Both the majority of investors and issuers also agreed that the target company’s size should be near the median

of the selected peers (75 percent and 64 percent, respectively); the ISS-selected peer within the same GICS group as one or more of the target company's published peers (79 percent and 51 percent,

respectively); and the ISS-selected peer has chosen the target company as a peer (67 percent and 56

percent, respectively) as somewhat relevant or neutral factors

It appears, however, that the ISS-selected peer being included in the target company’s published peer group(s) is only somewhat relevant or neutral in selecting peers for a pay-for-performance comparison group for 64 percent of investors while it is the most relevant factor for the majority of issuers (65 percent) Moreover, 74 percent of investors indicated the ISS-selected peer being in the same GICS group as the target company as a very or somewhat relevant factor, while 55 percent of issuers

indicated that factor to be somewhat relevant or neutral

A two-thirds majority of investor respondents cited that ISS should continue to create its own peer group and provide the company’s peer group as an alternative view For issuers, the responses varied with the most common response citing that ISS should use the company’s peer group without

Common suggestions for such metrics included EPS and revenues as the alternative metrics

Standardized calculations of realized/realizable pay or measures of such pay provided by the

company are favored by both issuers and investors One-half of investor respondents indicated that

they would consider both granted and realized/realizable pay as an appropriate way to measure and analyze executive pay The other half of investor responses varied among other perspectives with 25 percent indicating that ISS should use granted pay in a quantitative evaluation but consider

realized/realizable pay in a qualitative evaluation to determine overall pay-for-performance For

issuers, responses varied, with the least popular perspective to focus on “granted pay” (primarily cash and the grant-date value of equity awards)

A majority of investors indicated that both a standardized calculation of realized/realizable pay and measures of realized or realizable pay as provided by the company are appropriate ways to consider such pay in a pay-for-performance evaluation Issuer responses varied, with 36 percent citing a

standardized calculation of realized/realizable pay and 29 percent citing measures of realized or

realizable pay as provided by the company as the appropriate way to consider such pay

Regarding pay-for-failure scenarios, cash severance exceeding 3x base salary and target bonus and new severance agreements entered immediately prior to a CEO’s departure are considered

problematic: both issuers and investors agree Over 80 percent of investor respondents consider all

of the following actions as problematic in a scenario where a CEO receives sizable termination package

at a time of significantly lagging shareholder returns: a severance settlement when the executive is stated to be retiring or resigning, immediate acceleration of all unvested equity upon termination without cause, cash severance exceeding 3 times base salary and target bonus, a new severance

agreement entered into immediately prior to departure, and large pension/SERP payouts A majority

of issuer respondents, on the other hand, do not consider any of these actions to be problematic with the exception of cash severance exceeding 3x base salary and target bonus and a new severance

agreement entered immediately prior to departure

The practice of pledging stock is concerning to both investors and issuers Almost 50 percent of

investor respondents and 45 percent of issuer respondents view any pledging of shares by executives

or directors as significantly problematic, with 38 percent and 35 percent, respectively, viewing it as concerning if it involves a significant amount of shares (e.g., > 500,000 or a value exceeding 10 percent

of the company's market value)

Investors are inclined to target management say-on-pay proposals in the event a company has

significant ES&G-related risks and no ES&G performance metrics tied to executive pay packages At a

company where risks stemming from severe ES&G controversies have been identified and the

company does not incorporate ESG performance metrics (such as environmental goals or regulatory compliance) in executive pay packages, the majority of investor respondents indicated that they would vote against the management say-on-pay proposal but would not vote against the compensation committee or the full board

U.S Board Issues

The presence of a lead/presiding director and a company’s governance structure are key

considerations for investors when voting on shareholder proposals seeking an independent board chair When determining whether or not to support shareholder proposals seeking an independent

board chair, 65 percent and 58 percent of investor respondents, respectively, indicated (1) the

presence or absence of an independent lead or presiding director and (2) the company governance structure are “very relevant” attributes However, a significant majority (over 69 percent) of investors indicated that all attributes (the presence or absence of an independent lead or presiding director, the company's governance structure, the company's total shareholder return relative to peers, and the company's reasons for maintaining a combined chair/ CEO board leadership structure) are all either

“very relevant” or “somewhat relevant” factors

Investors expect boards to be responsive to a majority-supported shareholder proposal of shares cast in the previous year Eighty-six percent of investor respondents indicated that they expect the

board to implement a shareholder proposal that receives support from a majority of shares cast in the previous year Almost half (47 percent) of issuer respondents agreed with that view as well

U.S Corporate Lobbying

Investors and issuers diverge on disclosure practices related to corporate lobbying More than half of

the investor respondents view greater disclosure of corporate lobbying policies, procedures, oversight mechanisms, and expenditures as beneficial, depending on the company’s current level of

transparency and of any significant related issues In contrast, more than half of issuer respondents view greater disclosure in this topic as not beneficial, and lobbying as an issue best left to

management’s discretion

U.S Proxy Access

Ownership and duration thresholds, a cap on board seats, and the company’s governance practices carry weight for both investors and issuers when evaluating proxy access standards When

considering a voting decision with respect to proxy access shareholder proposals or to adopt a proxy access right, 81 percent of investor respondents and 80 percent of issuer respondents indicated that the minimum ownership threshold in relation to the company’s market cap is “very relevant.”

Furthermore, minimum ownership duration was also indicated as a “very relevant” factor by 66

percent of investors and 85 percent of issuers Other factors that were indicated as “very relevant” by

a majority of both issuers and investors are the proportion of directors that each party may nominate

in an election and the company’s governance practices

However, a significant majority (more than 80 percent) of both investors and issuers indicated that all factors cited (minimum ownership threshold in relation to the company's market cap, minimum

ownership duration, whether the proposal is binding or non-binding, the proportion of directors that each party may nominate in an election, the company's governance practices, the ownership profile of the company, and the proponent's rationale) are either “very relevant” or “somewhat relevant.”

Canada

Investors would not change voting policies on director nominees if majority voting in director

elections is mandated When investor respondents were asked how their vote decision on director

nominees would be impacted if majority voting in the form recommended by the Canadian Coalition for Good Governance is mandated by the Canadian Securities Administrators for 2013 and beyond, 62 percent indicated no impact whatsoever

Guaranteed pay elicits mixed views among investors with respect to voting against the management say-on-pay proposal Investor respondent views were split with 51 percent indicating that any form of

guaranteed pay set out in employment agreements should not trigger a vote against a voluntarily adopted advisory vote on executive compensation, while 49 percent indicated that it should trigger a vote against the proposal

Factors that received a majority response as warranting a vote against the proposal include an

unreasonable payout range for incentive compensation (i.e., where the range does not start at zero for

no achievement to an upper payout potential of 400-500 percent generally of base salary), lack of any performance based long-term incentive compensation, interest-free or forgivable loans to executives

to exercise options or purchase shares, and a single trigger change in control provision in an

employment agreement

Europe

Investors would consider opposing the reelection of a non-independent chair at companies where the roles are combined In markets where the roles of CEO and chair are generally separate, most

investor respondents (40 percent) indicated that they would oppose the reelection of a

non-independent chair at companies where the roles are held by the same individual, with 28 percent indicating that they would oppose this structure in all markets Twenty-five percent of issuer

respondents indicated opposition in markets where the roles are generally separated and 25 percent indicated opposition in all markets

Investor and issuers generally support deferred bonus shares Many European banks have been

required to adjust their compensation practices in light of a new EU-level directive on remuneration at financial institutions The most significant resulting trend has been a movement away from the

traditional short-term/long-term variable pay mix and toward a deferred bonus model, in which all variable pay is measured based on performance in a single year and then deferred for a multi-year period Oftentimes, the deferred pay is converted into share units and settled in shares A significant majority of both investor and issuer respondents, 69 percent and 78 percent, respectively, indicated that they would either generally support time-vesting deferred bonus shares or support them as long

as clawback features are present Most investors (49 percent) indicated that they would generally support these types of bonus shares as long as clawback features are present In contrast, most issuers (50 percent) would generally support them outright

Hong Kong

Investors take a case-by-case approach on the impact of director tenure on director independence

Hong Kong listing rules have recently been amended to require that, when an independent director has served more than nine years (three terms) on the board, the issuer include in the meeting circular the reasons why it considers that director to still be independent Regarding perspectives on director tenure and its impact on director independence, the majority of investor respondents (55 percent) indicated a case-by-case approach, depending on the company's stated reasons for considering the director independent The issuer respondents were split, with 43 percent indicating a case-by-case approach, and 43 percent indicating they would continue to treat such directors as independent, as long as all other elements of the independence test are met

Asia (excluding Japan)

Investors consider several factors very relevant when evaluating debt-related proposals where disclosure regarding these proposals is often poor A significant majority (over 70 percent) of investor

respondents indicated that potential voting and economic dilution from conversion of the debt

instruments into shares (where applicable), size of the issuance relative to the company’s size and its leverage, lack of disclosure of the financial impact of the issuance, and lack of disclosure of the use of proceeds are all very relevant factors when evaluating debt-related proposals where key terms

(including interest rates), the impact of the borrowing on the company’s gearing ratio, and the

intended use of the borrowed funds are often not disclosed

Emerging Markets

Investors show no tolerance for insufficient disclosure related to the election of directors at

companies in Latin America, Eastern Europe, and the Middle East and North Africa A significant

majority of investor respondents indicated that they would vote against the election of directors at all companies in Latin America, Eastern Europe, and the Middle East and North Africa for failure to

disclose nominee names and/or independence status The responses further indicate that more than three-quarters of investor respondents would vote against director elections in all of these markets if the nominee's name is not provided, while more than 60 percent would vote against director elections

in all of these markets if no disclosure of independence status is provided

Appendix: Detailed Survey Responses

Survey results are based on 106 institutional shareholder responses and 288 issuer responses reflecting

more than one response from the same organization

Except as otherwise noted, percentages exclude non-responses and any “not applicable” responses For questions that allowed multiple answers, the percentages will not equal 100 percent Percentages for certain questions may also not equal 100 percent due to rounding

ISS Research

ISS' global policy formulation process monitors emerging and evolving issues and best practices and collects feedback from a diverse range of market participants through multiple channels: an annual policy survey of institutional investors and corporate issuers, roundtables with industry groups, and ongoing feedback with a variety of clients during and after proxy season

Before finalizing the updated policy, we publish draft updates of key changes for a review and

comment period, open to all market participants Final policy updates are published in November and apply to meetings held after Feb 1 of the following year

How useful are the following ISS outreach activities to your organization when developing your organization's voting policies (if you are an institutional investor) or in your assessment of your company's governance practices (if you are an issuer)?

Annual ISS Policy Survey

Participation in policy roundtable discussions

Comment Period on draft ISS policies (comments are publicly available on ISS' website)

Would your organization generally be interested in participating in a policy roundtable discussion depending on a policy topic of your interest?

analysis and recommendations

Considering the benefits of ISS' engagement with issuers - enhancing dialogue and providing

additional information on ISS' research reports, how useful are the following elements of ISS'

engagement process to your organization?

Engagement Summary on ISS' Report (Summarizes engagement activity specifying topics discussed)

Telephonic Calls and Meetings with Issuers (To clarify ISS policy, as well as obtain information about company's voting-related items)

Draft Review (For S&P 500 companies to review factual accuracy of data in ISS' report)

Would it be helpful to have an ISS research offering (including an analysis and vote

recommendations) to assist your organization's voting on the following items?

Fixed-income (i.e bondholder meetings)

Company Profile

Key Governance Factors

Vote Results for the Previous Annual Meeting

Equity Ownership Profile

Critical Governance Principles

Which governance topics are most important to your organization this year?

Data shows the number of responses each topic received in each region Numbers in parentheses refers to ranking 1=most popular choice, 2=2nd most popular choice, etc The top three topics have been highlighted in yellow

Executive compensation - North America 66 (1) 173(1) Board competence/director qualifications - North America 38(2) 74(3)

Shareholder rights/takeover defenses - North America 32(4) 49(5)

M&A and proxy fights - North America 21(7) 30(7)

Audit-related practices - North America 12(9) 32(6)

Board competence/director qualifications - Europe 29(3) 20(3) Shareholder rights/takeover defenses - Europe 19(4) 13(6)

Executive compensation - Asia-Pacific 27(2) 14(2) Board competence/director qualifications - Asia-Pacific 25(3) 10(3) Shareholder rights/takeover defenses - Asia-Pacific 24(4) 7(4) Audit-related practices - Asia-Pacific 21(5) 4(6)

M&A and proxy fights - Asia-Pacific 7(9) 1(7)

Developing Markets Investors Issuers

Board independence - Developing Markets 35(1) 4(5) Board competence/director qualifications - Developing Markets 22(2) 7(3) Executive compensation - Developing Markets 20(3) 15(2) Audit-related practices - Developing Markets 17(4) 3(6) Shareholder rights/takeover defenses - Developing Markets 17(5) 7(3) Risk oversight - Developing Markets 13(6) 18 (1)

M&A and proxy fights - Developing Markets 5(8) 1(7)

Nominating Process and Overboarding

In assessing a new or prospective board nominee, how important does your organization consider the following factors in evaluating the candidate's experience, qualifications, and skills?

Recent (past five years) direct experience in industry sector

Nominee diversity (with respect to gender/race) relative to other directors

Not applicable (My organization

Chair of nominating committee

Investors Issuers

Not applicable (My organization

All members of nominating committee

Investors Issuers

Not applicable (My organization

Currently, ISS has a policy on overboarded directors (directors serving on an excessive number of boards) which counts only public company boards Should ISS include other significant directorships

in its policy (e.g., private companies, national non-profit organizations, subsidiary company boards)?

Investors Issuers

Dual-Class Capital Structures

In proposals to collapse multiple classes of common shares with uneven voting rights, the exchange ratio is a key factor in the evaluation process When the exchange ratio has not been established in the company's articles of incorporation or bylaws, what is your organization's view on what should

be the appropriate exchange ratio?

Investors Issuers

The exchange ratio should result in a premium to market price for the

The exchange ratio should be the ratio implied by market trading prices,

thus not providing a market premium to the class suffering voting

The exchange ratio should be one-for-one, regardless of whether this

implies a premium to market price for either class 23.5% 18.0%

United States – Compensation – Pay for Performance/Say-on-Pay

ISS' pay-for-performance evaluation includes an initial quantitative test, which triggers an in-depth qualitative evaluation of the company's pay programs and practices where a potential misalignment is identified

Peer Groups

As part of its quantitative pay-for-performance screen, ISS compares a company's TSR and CEO pay relative to a comparison group, which for 2012 is based on identifying peers within the company's Global Industry Classification System (GICS) groupings and within a specified size range relative to the subject company

What is you organization’s view regarding ISS' selection of peer groups for analysis of executive compensation?

Investors Issuers

ISS should continue to create its own peer group 15.2% 2.1%

ISS should continue to create its own peer group and provide the

company's peer group as an alternative view 66.7% 24.2%

ISS should use the company’s peer group subject to ISS standards for

ISS should use the company’s peer group without exception 3.0% 38.9%

Under a consistent methodology, ISS might need to construct pay-for-performance comparison groups Please rate the importance and relevance of each of the following factors in selecting peers, where 1 is "very relevant" and 5 is "not at all relevant":

The ISS peer is within a specified size range of the target company (e.g., between 0.5 and 2 times the company's revenue)

Sum of each rating multiplied by the respective response percentage 1.76 2.04

The ISS peer is in the same Global Industry Standard (GICS) group as the target company

Sum of each rating multiplied by the respective response percentage 1.97 2.81

The target company’s size is near the median of the selected peers

Sum of each rating multiplied by the respective response percentage 2.45 2.41

The ISS peer is within the same GICS group as one or more of the target company's published peers

Sum of each rating multiplied by the respective response percentage 2.50 3.08

The ISS peer is included in the target company's published peer group(s)

Sum of each rating multiplied by the respective response percentage 2.70 1.60

The ISS peer has chosen the target company as a peer

Sum of each rating multiplied by the respective response percentage 2.73 2.89

Measuring Pay

Regarding ISS’ pay-for-performance methodology when evaluating say-on-pay proposals (“MSOP”), how likely would your organization consider performance metrics other than total shareholder return as a factor in your voting decision on MSOP?

Not Applicable (My organization does not

As part of its pay-for-performance analysis, ISS measures CEO pay based on the proxy statement's Summary Compensation and Grants of Plan-Based Awards tables, reflecting salary and cash awards, together with the grant-date fair values of equity awards approved by the Compensation Committee, and the value of perquisites and benefits Some market participants have proposed using alternative measures of pay, particularly to account for changes in the value of equity awards after their grant

What does your organization believe is the appropriate way to measure and analyze pay?

Consider both granted and realized/realizable

pay in the quantitative evaluation 50.0% 27.3%

Focus on "granted pay" (primarily cash and the

grant-date value of equity awards) 11.8% 16.5%

Focus on "realized" and/or "realizable" pay,

based on a consistent definition of those

Use granted pay in a quantitative evaluation

but consider realized/realizable pay in a

qualitative evaluation to determine overall

MSOP Frequency

In 2013, small-cap companies (companies with public float of less than $75 million) will be required

to submit a management say-on-pay proposal (MSOP) and an MSOP frequency proposal for

shareholder vote For those companies, which of the following MSOP frequencies would your