Proxy Voting and Governance
Summaries of Selected Proxy Voting Guidelines
The following are summaries of how the BNY Mellon Voting and Governance Committee (the "Committee") generally views certain matters that are brought before the Committee in connection with the voting of proxies by those Member Firms who exercise voting discretion as a fiduciary for their clients. These summaries and the views reflected below by their nature are not intended to be complete and are not detailed explanations of all the guidelines and rule sets that the Committee uses to assist with the proxy voting process. The summaries below are published by the Committee to provide public company issuers and investors with a broad view of how the Committee approaches certain topics and proposals in the context of voting proxies for its Member Firms' fiduciary clients; and such summaries are not intended to limit in any way the Committee's or any Member Firm's actions with respect to its activities regarding the voting of proxies of any particular proposal or on shareholder voting matters generally. Please refer to the Introduction section for an overview of the Committee, its philosophy, voting guidelines, process, and approach to conflicts of interest, and for the meanings of the capitalized terms used herein.
1. Boards and Directors
- Election of Directors
The Committee believes that a majority of a company's board members should be independent of management.
- Incumbent / Nominee Directors
The Committee generally votes FOR incumbent and nominee directors. However, the Committee generally votes to WITHOLD support in cases when individual directors (or the board, as applicable): (1) have been disciplined by a regulatory authority and/or have been found guilty of a criminal offense, (2) attend less than 75% of meetings for two consecutive years, (3) serve on six or more boards, (4) fail to respond to approved shareholder proposals, or (5) fail to act on a tender offer where a majority of shareholders have tendered their shares.
- Compensation Committee Members
- Generally, the Committee votes FOR incumbent members of the compensation committee. However, the Committee will generally vote to WITHHOLD support for compensation committee members who: (1) approve compensation arrangements or pay practices deemed excessive relative to peers, (2) fail to adopt mandatory "say-on-pay" frequency approved by shareholders, (3) re-price or exchange stock options without shareholder approval, or (4) manage single or modified-single trigger executive severance agreements.
- The Committee also will generally WITHHOLD support for compensation committee members if the company's compensation plans are either discretionary or greater than 50% time-based without effective clawbacks. When determining the effectiveness of a company's clawback/recoupment policy, the Committee will consider: (1) the amount of information the company provides in its proxy statement on the circumstances under which the company recoups incentive or equity compensation, (2) whether the company's policy extends to named executive officers and other senior executive officers (and not simply the CEO and CFO), (3) if the policy requires recoupment of incentive and equity compensation received and subsequently determined to have been "unearned" during the prior 3-year period; and (4) if the policy considers performance-based compensation (either in its entirety or a portion, depending on the award structure) to be "unearned" and subject to recoupment if the corresponding performance target(s) are later determined to have not been achieved for any reason (rather than first requiring evidence of "misconduct" or fraudulent activity and/or a formal restatement of financial results).
- The Committee will generally WITHHOLD support in situations where there is insufficient disclosure to discern whether executive pay and performance are linked and adequate controls are in place.
- Incumbent / Nominee Directors
- Audit Committee
Generally, the Committee votes FOR independent incumbent members of an audit committee. However, the Committee will vote to WITHHOLD support in situations where: (1) audit fees are either undisclosed or insufficiently disclosed such that the amount paid to the auditor for non-audit services cannot be determined, (2) a material weakness is disclosed and not remediated timely, or (3) non-audit fees exceed the sum of audit, audit-related and tax compliance/preparation fees.
- Management Nominees
The Committee generally votes FOR management nominees for board or committee membership. In exceptional cases, such as severe governance concerns or when a Proxy Advisor recommends to withhold, the Committee will generally consider the proposal on a CASE-BY-CASE basis. If a nominee received less than majority support at the prior election and the board has not addressed the cause of that low support, the Committee will generally WITHHOLD its support.
- Classified Board
The Committee believes shareholders should annually vote for all members on a company's board of directors. The Committee votes FOR requests to declassify the board and will generally vote AGAINST proposals to adopt or continue a classified board structure.
- Board Independence
The Committee votes FOR management proposals for the election of independent directors that are consistent or more restrictive than listing standards and generally favors an independent chairperson. Conversely, the Committee votes AGAINST shareholder proposals that are more or less restrictive than listing standards with respect to director "independence."
- Board Size
The Committee votes FOR management requests to configure the size of the board of directors with appropriate rationale, absent evidence of entrenchment or a disadvantage to shareholders. However, the Committee votes AGAINST proposals that remove the shareholders' right to vote on board configuration matters, or that would give the board sole discretion to set the number of members.
- Vote Majority and Removal
Generally, the Committee supports the practice of one share, one vote. As such, we vote FOR proposals to elect director nominees by the affirmative vote of the majority of votes cast at the annual or special meeting. The same practice is applied to proposals mandating the removal of a director upon a simple majority vote, such that the Committee votes AGAINST management proposals that require a supermajority vote for removal.
- Additional Board Considerations
Generally, the Committee votes FOR management proposals that prescribe requirements for elected directors including term limits, stock ownership, and separating the positions of Chairman and CEO. However, the Committee generally votes AGAINST shareholder proposals to separate the Chairman and CEO positions if a lead or presiding director with appropriate authority is appointed; but is likely to vote FOR such a proposal if a lead or presiding director with appropriate authority has not been appointed.
2. Accounting and Audit
- Generally, the Committee votes FOR the ratification of the board's selection of an auditor for the company. The Committee will vote AGAINST the ratification of the auditors if there are concerns of: (1) negligence due to issuance of an inaccurate audit opinion, or (2) non-audit fees are either excessive or not adequately disclosed. The Committee typically votes AGAINST shareholder proposals for auditor rotation arrangements that are more restrictive than regulatory requirements.
3. Anti-Takeover Measures
- Generally, the Committee opposes proposals that seem designed to insulate management unnecessarily from the wishes of a majority of the shareholders and that would lead to a determination of a company's future by a minority of its shareholders. However, the Committee generally supports proposals that seem to have as their primary purpose providing management with temporary or short-term insulation from outside influences so as to enable management to bargain effectively with potential suitors and otherwise achieve identified long-term goals to the extent such proposals are discrete and not bundled with other proposals.
- Shareholder Rights Plan or "Poison Pill"
Generally, the Committee votes FOR proposals to rescind a "poison pill" or proposals that require shareholder approval to implement a "pill." Further, a WITHHOLD support vote on the election of directors will follow the adoption or renewal of a poison pill without shareholder approval.
- Non-net Operating Loss Shareholder Rights Plan
The Committee votes FOR non-net operating loss shareholder rights plans if all the following are in place: (1) a plan trigger that is 20% or greater, (2) a term not exceeding 1 year, (3) the plan terminates if not ratified by shareholder majority, (4) there are no "dead hand" or "modified dead hand" provisions, and (5) the plan has a qualified offer clause. The Committee reviews these NNOL plans on a case-by-case basis outside of these prescribed requirements.
- Special Meetings and Majority Vote
The Committee believes the rights to call a special meeting and to approve an action with a simple majority vote are powerful tools for shareholders. As such, we generally support proposals that uphold these rights. More specifically, with respect to a shareholder's right to call a special meeting, the Committee generally votes FOR proposals that would allow shareholders to call a special meeting if a reasonably high proportion of shareholders (typically of at least 15%, but no more than 25%, of the company's outstanding stock) are required to agree before such a meeting is called. However, the Committee may vote AGAINST certain similar proposals, if (for example) the structure would favor a dominant shareholder to the exclusion of other shareholders.
4. Capital Structure, Mergers, Sales and Transactions
With respect to proposals to reincorporate or to affect some other type of corporate reorganization, the Committee's primary concern is the long-term economic interests of shareholders. In making these decisions, the Committee considers the Proxy Advisor's vote recommendation, Committee member's opinions' and the fairness opinion when voting for or against a merger/reorganization or similar proposals.
- Capital Structure
In assessing asset sales, reorganizations, bankruptcy or other capital structure changes, the Committee looks to the economic and strategic rationale behind the transaction and supports those proposals that uphold the shareholders' long-term economic interest.
- The Committee generally votes FOR stock split proposals if the purpose is to: (1) increase liquidity and/or (2) adjust for a significant increase in stock price.
- The Committee generally votes FOR reverse stock split proposals if the purpose is to avoid stock exchange de-listing. The Committee also generally votes FOR proposals to decrease the number of common stock shares outstanding following reverse stock splits and proposals to eliminate unissued blank check preferred stock or a class of common stock with voting rights greater than the class held in client accounts.
- Authorized Stock Increases
Generally, the Committee votes FOR proposals for the authorization to issue additional shares of common or preferred stock if it determines that the increase is: (1) not excessive relative to the industry's average rate or otherwise harmful to the long-term economic interests of shareholders, or (2) necessary to avoid bankruptcy or to comply with regulatory requirements or other legally binding matters. The Committee will generally vote AGAINST such proposals that would exceed the industry's average rate and/or the business purpose is not articulated sufficiently.
- Preferred Stock Authorization
Where the voting power of the new issuance is specified as equal to or less than existing common stock shares, and the Proxy Advisor and the fairness opinion agree, the Committee generally votes FOR proposals to issue preferred stock. When the voting power of the new issuance is either unspecified or exceeds that of the existing shares of common stock, the Committee generally votes AGAINST proposals to issue preferred stock.
5. Corporate Governance
- Cumulative Voting
The Committee generally votes AGAINST proposals to continue or to adopt cumulative voting.
- Confidential Voting
The Committee generally votes FOR opportunities that maintain shareholder voting confidentially or the employment of independent inspectors to uphold a fair voting process.
- Amend Bylaw, Charter or Certificate
Generally, the Committee votes FOR management proposals when the focus is administrative in nature or compliance driven and there is no evidence of negative impact to shareholder rights. If evidence suggests that proposals would result in a reduction of shareholder rights or lead to entrenchment, the Committee votes AGAINST such proposals.
- Indemnity Liability Protection
Generally, the Committee votes FOR proposals to limit directors' liability or expand indemnification on behalf of their service to the company. However, the Committee votes AGAINST proposals that support indemnification for director actions conducted in bad faith, gross negligence or reckless disregard of duties.
- Adjourn Meeting
In cases where the Committee is supportive of the underlying transaction or proposal and the purpose of the adjournment is to obtain additional votes, the Committee will vote FOR the adjournment.
6. Proxy Contests
- In the case of proxy contests, the Committee will endeavor to provide both parties an opportunity to present their case and arguments before determining a course of action.
- The Committee's general policy is to consider: (1) the long-term economic impact of the decision, (2) the company's record and management's ability to achieve our reasonable expectations for shareholder return, (3) overall compensation for officers and directors and share price performance relative to industry peers, (4) whether the offer fully realizes the future prospects of the company in question with the likelihood of the challenger achieving their stated goals, and (5) the relevant experience of all board nominees.
7. Social, Ethical and Environmental
- The Committee reviews all management sponsored social, ethical and environmental responsibility proposals on a CASE-BY-CASE basis. Generally, the Committee considers various factors in voting decisions, including: (1) the long-term economic impact including implementation cost-to-benefit considerations, (2) the company's current legal and regulatory compliance status, (3) the binding or advisory nature of the request, and (4) whether the proposal's underlying objective is within the scope of the company's influence and control.
- The Committee generally votes FOR shareholder sponsored proposals when the proposal can reasonably be expected to enhance long-term shareholder value and when management fails to respond meaningfully to the proposal. The Committee generally votes AGAINST shareholder proposals when management has responded meaningfully and there is no evidence of: (1) shareholder value creation, (2) regulatory non-compliance, (3) failed oversight from the board and management for the subject activity, (4) the company is operating outside of industry standard practice, or (5) the proposal request is vague or overly restrictive and unlikely to achieve the underlying intent.
8. Compensation and Benefits
- Equity Compensation
The Committee employs a shareholder value transfer model and a burn rate model to measure the value transfer from shareholders to employees and directors when considering equity compensation proposals.
The Committee generally votes FOR proposals relating to equity compensation plans that: (1) prohibit share re-pricing without shareholder approval, (2) use section 162 (m) rules for plan administration by independent directors, and (3) that require an issuance of stock or options as equal payment in lieu of cash to directors.
The Committee generally votes AGAINST compensation plans that: (1) fail our shareholder value transfer model, (2) allow option exchange or re-pricing without shareholder approval, and (3) accelerate vesting without consummation of a change-in-control transaction.
The Committee reviews on a CASE-BY-CASE basis those proposals that:
- pass our shareholder value transfer model and either (1) fail our burn rate model; (2) the plan is "silent" on repricing and the company has a history of the practice or (3) our Proxy Advisor recommends an "against" vote;
- fail our shareholder value transfer model but the plan (1) is required to complete a transaction supported by the Committee or (2) includes details regarding extenuating business circumstances; or
- concern plans that serve as a vehicle to perpetuate a disconnect between pay and performance or favors executive officers whose pay is already significantly higher than peers.
- Say on Pay
If the ballot seeks an advisory vote on the frequency of say-on-pay proposals, the Committee generally votes FOR proposals that call for say-on-pay on an ANNUAL basis.
The Committee will generally vote FOR management proposals on say-on-pay. However, the Committee generally votes AGAINST management in situations where: (1) the company re-priced or exchanged stock options without shareholder approval, (2) the company has single- or modified single-trigger executive severance agreements, (3) the company's compensation plans are either discretionary or greater than 50% time-based without effective clawbacks. When determining the effectiveness of a company's clawback/recoupment policy, the Committee will consider: (1) the amount of information the company provides in its proxy statement on the circumstances under which the company recoups incentive or equity compensation, (2) whether the company's policy extends to named executive officers and other senior executive officers (and not simply the CEO and CFO), (3) if the policy requires recoupment of incentive and equity compensation received and subsequently determined to have been "unearned" during the prior 3-year period; and (4) if the policy considers performance-based compensation (either in its entirety or a portion, depending on the award structure) to be "unearned" and subject to recoupment if the corresponding performance target(s) are later determined to have not been achieved for any reason (rather than first requiring evidence of "misconduct" or fraudulent activity and/or a formal restatement of financial results).
The Committee will generally vote AGAINST the proposal if there is insufficient disclosure to discern whether executive pay and performance are linked and adequate controls are in place.
- Option Re-pricing or Exchange
Generally, the Committee believes that stock compensation aligns managements' and shareholders' interests based on fair-market value grants.
In cases where management is proposing to address a compensation misalignment, the Committee generally votes FOR such proposals that: (1) seek exchanges that are value-for-value, (2) exclude executives, directors and consultants, (3) do not recycle exercised options, and/or (4) involve current options that are significantly under water and the new exercise price is reasonable. The Committee generally votes FOR proposals that require stock option exchange and repricing programs to be put to shareholder vote.
In cases of proposals where the exchange and/or repricing requests do not meet these criteria, the Committee generally votes AGAINST the management proposal.
- Golden Parachute Plans
In reviewing management compensation agreements, the Committee generally votes FOR those that: (1) involve payments that do not exceed three times the executive's total compensation (salary plus bonus), (2) have a double trigger, and (3) do not provide for a tax gross-up in the contract. Conversely, the Committee generally votes AGAINST compensation agreements that do not adhere to these requirements. As a facet of a capital structure change, the Committee will consider these compensation agreements on a CASE-BY-CASE basis.
In reviewing shareholder proposals, we generally support those that require the company to submit compensation agreements to a vote.
- Other Compensation Requests
The Committee generally votes FOR proposals requesting loans for management where the interest rate follows the IRS or other prevailing market rates of interest.
Generally, the Committee votes FOR stock purchase plans that allow a broad group of employees to purchase shares and limits the discount to 15% or less.
The Committee generally votes FOR the expensing of stock options on a company's financial statements.
The Committee generally votes FOR proposals to exclude pension income for executives from the company's total income, as used to determine executive compensation plan calculations.
Generally, the Committee votes FOR proposals that seek management and director retention of stock awards for no more than one year and 25% of shares awarded.