The 2011 proxy season is well underway and companies are taking seriously voting recommendations on Say-on-Pay proposals issued by Institutional Shareholder Services (ISS). Several companies, including, for example, Hewlett Packard, Walt Disney, Unisys Corporation and General Electric (GE) issued shareholder communications arguing against ISS’ negative Say-on Pay voting recommendations. GE went one step further and subsequently imposed performance conditions on Jeffrey Immelt’s (GE’s CEO) stock options prior to its annual shareholder meeting, which resulted in ISS changing its voting recommendation from “against” to “for” GE’s Say-on Pay proposal. One thing is clear: ISS’ preference for pay-for-performance executive compensation is not to be underestimated.

As recently publicized, ISS initially issued a recommendation to shareholders to vote “against” GE’s Say-on-Pay proposal, at least in part due to a perceived misalignment between GE’s long term performance and the CEO’s compensation. In particular, it appears that the CEO’s 2010 stock option grant to purchase 2,000,000 shares (vesting 50% after three years and 50% after five years) was at issue. ISS indicated that GE’s move away from performance-based equity awards for its CEO to time-based stock options for 2010 was not adequately supported.