Tax gross-ups, perks, and clawbacks are among the pay-related items that will get a close look by proxy advisory firm RiskMetrics Group during the upcoming proxy season, according to its 2009 proxy voting policies.

Among other things, RiskMetrics has expanded its U.S. Poor Pay Practices Policy, which identifies pay practices that would prompt recommendations against compensation committee members, to include: new change-in-control arrangements that include tax gross-ups on excise payments triggered by severance (“golden parachute”) payments; tax gross-ups on executive perks; modified “single-trigger” change-in-control provisions that allow an executive to receive a CIC payment upon voluntary resignation, and payment of dividends or dividend equivalents on unearned performance awards.

Notably, the firm’s own analysis of estimated change-in-control payments for S&P 500 companies, based on 2008 proxy statements, found that companies with tax gross-ups have significantly higher change-in-control payouts. Potential payouts for named executive officers at companies providing tax gross-ups averaged $72.5 million, nearly $30 million higher than for companies not providing gross-ups. RiskMetrics says only $12 million of the difference is due to the amount of the gross-up, indicating that the gross-up may be prompting higher change-in-control payments.

RiskMetrics has also aligned its policies on compensation-related shareholder proposals to the practices outlined in the U.S. Treasury’s rules under the Emergency Economic Stabilization Act of 2008. For example, proposals on “clawbacks” of incentive pay may now receive support if existing policy doesn’t meet the practices outlined by Treasury. The updated policy also establishes guidelines for evaluating whether a given perk is excessive.

With respect to shareholder proposals and resetting and repricing equity plans, RiskMetrics says it won’t view market deterioration, in itself, as an acceptable reason for companies to reprice stock options or reset goals under performance plans. The firm will use 400-day stock volatility in measuring the cost of equity plans.

Board structure and audit practices will also be key issues for the upcoming proxy season. As in prior years, RiskMetrics will generally recommend in favor of shareholder proposals requiring the chair position be filled by an independent director, unless the company has a counterbalancing governance structure, good performance, and the absence of problematic governance issues. The independent chair policy now incorporates a relative performance measure.

RiskMetrics also updated its policy guidelines to specify misapplication of GAAP and ongoing material weaknesses in Section 404 disclosures as triggers for in-depth analysis of accounting practices and to recommend against audit committee members in the case of an adverse opinion from auditors.

The policies will apply to all companies with shareholder meeting dates on or after Feb. 1, 2009. RiskMetrics will host a Webcast to review the policy updates on Dec. 4.

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