The Advisors' Blog

I’m sure many of our readers have more refined holiday traditions than I do, but I like to think that some of you enjoy watching random portions of “A Christmas Story” during its annual 24-hour marathon. If so, you’ll recall how Ralphie’s excitement reaches its pinnacle when his “Old Man” tells him there’s one more present hidden behind the tree. That is kind of how I felt yesterday, when Meredith and I realized that during the December hustle & bustle, ISS posted updated FAQs and related documents for the upcoming 2026 changes that were announced in late November.

As Meredith shared back in November, there are many compensation-related changes to ISS’s benchmark voting policies that will apply to 2026 meetings. The FAQs overlap with – and expand upon – those updates. But (to keep the holiday analogies going) there are also a couple of Easter eggs! Here are a few key takeaways:

1. Non-Compensation Policies & Procedures FAQs: Consistent with the new benchmark policy changes, ISS beefed up the FAQ on non-employee director pay by saying that it may issue adverse recommendations if there’s been problematic pay in two or more years (even if non-consecutive) – and that ISS could also issue an adverse recommendation in Year 1 in egregious cases. The FAQ also clarifies that ISS is inclined to issue an adverse vote recommendation for the entire board committee responsible for director pay, rather than just the chair. In ISS’s view, problematic director pay can exist based on excessive magnitude, or problematic perquisites, performance awards, stock options, or retirement benefits.

2. Equity Compensation Plan FAQs: Updates include:

– When calculating burn rate, ISS doesn’t offset incentive compensation grants with repurchased shares.

– Beginning February 1, 2026, equity plan proposals are generally analyzed on a post-economic transaction basis when matters such as a merger, financing, etc. are also on the ballot. Common shares issuable pursuant to the economic proposal will be included in ISS’s calculations, unless the proposed equity plan would only become effective if the proposed transaction isn’t completed.

– Elaborating on the two changes to the Equity Plan Scorecard framework about (1) limits on cash-denominated awards to non-employee directors (which applies to S&P 500 and Russell 3000 models) – and (2) the “overriding factor” for a plan that lacks a sufficient “Plan Features” pillar score (which applies to S&P 500, Russell 3000, and non-Russell 3000 models).

–> For the non-employee director awards, the FAQ says that if a plan discloses a cash-denominated award limit for directors – or if directors aren’t eligible participants under the plan – a company gets full points. If directors are participants and no cash-denominated limit is disclosed, then companies get no points for that factor. Companies don’t get points if their plan only has non-cash (i.e., share-denominated) award limits.

–> For the “Plan Features” overriding factor, the FAQ says ISS may recommend a vote against the equity plan proposal when the pillar score is less than 7 points.

– For non-Russell 3000 models, a clawback factor is now also part of the “grant practices” pillar.

– Updating factor weightings within all models (but no changes to any of the passing scores).

3. Pay-for-Performance Mechanics: ISS details how it’s adjusted its model to reflect longer time horizons – from 3 to 5 years for the measures of Relative Degree of Alignment and Financial Performance Assessment and from 1 year to the average of a 1- and 3-year assessment for the relative Multiple of Median measure. Those time horizons might be shortened – or measures might be excluded – for companies with fewer years of data. The FAQ explains how this is all calculated and assessed. This FAQ also says that extended time-based awards will now be viewed as a positive factor in the qualitative evaluation – while awards with vesting or retention requirements of less than 5 years will continue to be viewed negatively.

4. Executive Compensation Policies: Lots of updates here:

– Says that ISS is unlikely to raise significant concerns for relatively high executive security-related perks, as long as the company discloses a reasonable rationale. For example, disclosure of an internal or third-party assessment, and a broad description of the security program and its connection to shareholder interests, would generally mitigate concerns regarding relatively large security costs. However, extreme outliers in security costs may still drive significant concerns, particularly if not adequately addressed in the proxy disclosure.

– States that ISS will review management proposals seeking shareholder approval to reprice or exchange stock options on a case-by-case basis. ISS will consider factors like the quality of disclosure and rationale, whether the proposal is value-neutral, the program’s participants, historic trading patterns, timing, stock volatility, cost of equity plans, etc. ISS will generally recommend opposing repricing/exchange programs if the program includes NEO and/or director participants, the replacement awards are not subject to a minimum one-year vesting period, or any other factors that ISS considers problematic.

– Adds to the factors that ISS considers when evaluating “responsiveness” to a low say-on-pay vote to include significant corporate activity (e.g., mergers) and “any other recent compensation action or factor considered relevant to assessing board responsiveness.”

– Lays out lengthened time periods for the pay-for-performance model, similar to what’s explained above for the Pay-for-Performance Mechanics.

– Points out that the 3-year Multiple of Median measure is now incorporated into the quantitative screen, instead of just being provided for informational purposes.

– Updates and clarifies the list of factors ISS considers in its qualitative evaluation – e.g., to include time horizons, rationale for pay structures and decisions, and relevant industry or other external factors.

– Adds an explanation of how ISS considers a company’s financial performance in the qualitative evaluation and says that ISS sources GAAP performance measures sourced from Compustat as well as adjusted results and financial highlights disclosed by the company in its proxy statement. ISS also might consider performance as measured by its own financial performance assessment measure. For example, strong financial or operational results may explain above-target incentive payouts despite poor TSR performance.

– Details how ISS will review extended time-based awards as part of the pay mix evaluation. A program that consists primarily or entirely of time-based awards won’t in itself raise significant concerns as long as the design uses a time horizon of at least 5 years, which can be achieved through vesting or retention requirements. The FAQ goes into detail on how to demonstrate a 5-year time horizon through different types of vesting arrangements. The FAQ says that as before, if the program consists of more than 50% time-based equity that doesn’t utilize an extended time horizon, it will generally be a negative consideration.

– ISS (and investors) still want one-time/special awards to be performance based. The factors for those awards are unchanged.

– Clarifies that ISS considers profit-sharing awards to be incentive compensation, so payments are included in the quantitative screen and considered in the qualitative evaluation. ISS considers similar factors as for other incentive compensation when assessing these awards.

– Adds detail on how ISS evaluates annual incentives based on discretionary assessments. Bonus programs that are heavily based on discretionary determinations are viewed negatively, particularly for companies that exhibit a pay-for-performance misalignment. The FAQ says disclosures about discrete category and metric weightings, minimum performance requirements for payouts, and pre-set target/maximum pay opportunities, are all considered positive features and they may provide mitigating weight to such bonus programs that are informed by performance but ultimately discretionary.

5. Peer Group Selection Methodology and Issuer Submission Process: Beginning with peer groups constructed for meetings on and after February 1, 2026, ISS’s methodology will give priority to potential peers that were previously chosen by ISS as a peer for the company (among other unchanged factors).

Even though we’re moving into our “fragmentation era” for investor votes, keep in mind that the ISS recommendations still carry weight and reflect the views of many investors. To get more context and intel on ISS’s 2026 updates and priorities – so that you know what to expect for the upcoming proxy season – make sure to tune in tomorrow to our webcast on TheCorporateCounsel.net, “ISS Policy Updates and Key Issues for 2026.” Marc Goldstein, Managing Director & Head of U.S. Research at ISS, will discuss key themes with Davis Polk’s Ning Chiu and Jasper Street Partners’ Rob Main. If you aren’t already a member of TheCorporateCounsel.net, email info@ccrcorp.com to try a no-risk trial.

– Liz Dunshee

In this recent report (available for download), BDO highlights mid-market compensation trends, based on an analysis of 600 companies’ 2025 proxy disclosures. Here are a few key takeaways:

– CEO total direct compensation went up in six out of eight industries. The average CEO pay increase of 2.3% at the BDO 600 companies is lower than what has been reported at larger companies. For example, for the 2025 Equilar 100, median pay for 100 highly compensated S&P 500 CEOs increased by 9.5%, with the median value of stock awards increasing 40.5% in 2024.

– In aggregate, CEOs and CFOs experienced pay increases of 2.3% and 5.8%, respectively. When comparing year-over-year change, CEOs and CFOs experienced the following increases:

• CEOs were provided salary increases of 4.2% on average, while total cash increased by 4.5%. STI increased by 9.8%, reversing a two-year trend of decreases (71% decrease in 2023 and 5.1% decrease in 2022). LTI| increased by 1.1%, and TDC increased by 2.3%.

• CFOs received salary increases of 5.5% on average, while total cash increased by 3.9%.

• For CFOs also, STI increased by 10.6%, reversing a two-year trend of decreases (8.0% decrease in 2023 and 7.7% decrease in 2022). LTI increased by 6.0% and TDC increased by 5.8%.

If you’re thinking that “mid-market” might span a large range of company sizes and practices, the study addresses that by breaking down trends into 3 groups based on revenue size (or assets, for financial services), as well as industry groups. Not surprisingly, the disclosures show that pay is highly correlated with company size:

– Average CEO TDC ranges from $3,467,589 for the smallest companies (Size Group A) – to $7,326,556 for the largest companies in the sample (Size Group C).

– Average CFO TDC ranges from $1,456,672 for companies in Size Group A to $2,948,990 for companies in Size Group C.

– Large companies also awarded the largest pay increases for CEOs and CFOs. CEOs of large companies (Size Group C) experienced the largest increase in pay (3.2%) while CEOs of the smallest companies (Size Group A) experienced a 0.3% decrease. CEOs of midsized companies (Size Group B) experienced a 1.8% increase.

– CFO pay in Size Group C had the largest increase at 6.8%, while CFOs in Size Group B experienced a 4.0% increase. CFOs in Size Group A experienced an increase of 5.2%.

Check out the full survey for more info on the elements of compensation and industry-based trends. BDO also published an analysis of mid-market director compensation trends, which is available on the same download page. Even though the data is based on 2024 compensation practices that were disclosed in 2025, the benchmarking can still be helpful as compensation committees determine programs for the upcoming year.

Members of this site can access additional data in our “Compensation Surveys” Practice Area. (If you aren’t already a member, email info@ccrcorp.com.)

– Liz Dunshee

We’ve posted the transcript for our recent webcast “Equity Award Approvals: From Governance to Disclosure” with Jeff Joyce of Pay Governance and Sheri Adler and David Kaplan of Troutman Pepper Locke. They addressed:

1. Not Your Kindergartener’s Math: Share Counting
2. Planning Ahead: Award Design
3. Approval Formalities:
   • Who Approves?
   • What Gets Approved?
   • Grant Timing, Sizing and Disclosure
4. Documenting and Communicating Awards

Sometimes I find myself afraid to listen to these sorts of foundational programs because I know I’ll learn something that I will feel like I should already know. That was definitely true for me in this program, so here’s an excerpt of one of the discussions I found really illuminating. I hadn’t previously focused enough on the size of the impact of this conversion method — and the potential consequences for pay-for-performance assessments (or how explicit good disclosure is on this point).

David Kaplan: [I]f you’re granting PRSUs, you’ve got a choice between: Am I going to convert that target dollar value to a number of shares based on a stock price (spot price or a multi-day average) or using a Monte Carlo value? . . . It’s not unusual in my experience to see Monte Carlo values that are 130%, 135%, 140% of stock value. Jeff, are you seeing values far beyond that, or is that what you see typically?

Jeff Joyce: I think that’s the typical range, but I would note that there are some companies that do have Monte Carlos in the upwards of 150% to 160% of the face value of the stock, and that’s where this typically comes into question.

When you look at prevalence of practice, and this was somewhat surprising to me, a good portion of the market that uses PRSUs based on a market condition, a stock price or a TSR condition, uses stock price on the grant date rather than Monte Carlo for determining the number of shares . . . Basically, they say, “That’s too confusing for our participants. We’re going to use the stock price on the data grant just like RSUs,” but as you point out, there’s implications to doing that.

The most notable is for your named executive officers, you’re granting a target value using a lower share price so you get a greater number of shares, but then when it’s disclosed in the Summary Compensation Table, you apply the Monte Carlo, the accounting value, to that and it’s a value greater than that $1 million. It would be 1.5 times that if the Monte Carlo is 1.5. There’s a disconnect between the intended value and the disclosed value and the accounting expense associated with the award. If you’re using market data that doesn’t take into account the valuation approach, you’re over-delivering from a competitive perspective . . . I think a key takeaway from today’s discussion is to understand how shares are being determined for grant and just ensuring that the committee is aware of that, because from a Say-on-Pay perspective, this does influence the proxy advisor pay-for-performance assessments.

David Kaplan: . . . As you pointed out, Jeff, these differences can be material. If you’ve got committees that are saying, “We want to pay our named executive officers at the 50th percentile, and we’re going to convert PRSUs based on stock price,” and you’ve got that 150% Monte Carlo in your example — if your program is heavily tilted toward performance-based comp, as we’d all advise it should be, when you end up applying those Monte Carlo values, the accounting values come way higher.

You can end up essentially having total pay to CEOs be, I don’t know, 20% higher than really benchmarked. What you thought was a 50th percentile pay package turns into a 75th percentile pay package or more. The message to the boards we advise is: Use whatever conversion value you’d like, but know that you’re doing that. Understand those outcomes and act accordingly.

Members of this site can access the transcript of this program for free. If you are not a member of CompensationStandards.com, email info@ccrcorp.com to sign up today and get access to the full transcript.

– Liz Dunshee

Here’s something Dave shared earlier this month on TheCorporateCounsel.net:

Yesterday, the White House finally issued the Executive Order that we had all been expecting which specifically targets the proxy advisory firms ISS and Glass Lewis. The Executive Order states:

Section 1. Purpose. Unbeknownst to many Americans, two foreign-owned proxy advisors, Institutional Shareholder Services Inc. and Glass, Lewis & Co., LLC, play a significant role in shaping the policies and priorities of America’s largest companies through the shareholder voting process. These firms, which control more than 90 percent of the proxy advisor market, advise their clients about how to vote the enormous numbers of shares their clients hold and manage on behalf of millions of Americans in mutual funds and exchange traded funds. Their clients’ holdings often constitute a significant ownership stake in the United States’ largest publicly traded companies, and their clients often follow the proxy advisors’ advice.

As a result, these proxy advisors wield enormous influence over corporate governance matters, including shareholder proposals, board composition, and executive compensation, as well as capital markets and the value of Americans’ investments more generally, including 401(k)s, IRAs, and other retirement investment vehicles. These proxy advisors regularly use their substantial power to advance and prioritize radical politically-motivated agendas — like “diversity, equity, and inclusion” and “environmental, social, and governance” — even though investor returns should be the only priority. For example, these proxy advisors have supported shareholder proposals requiring American companies to conduct racial equity audits and significantly reduce greenhouse gas emissions, and one continues to provide guidance based on the racial or ethnic diversity of corporate boards. Their practices also raise significant concerns about conflicts of interest and the quality of their recommendations, among other concerns. The United States must therefore increase oversight of and take action to restore public confidence in the proxy advisor industry, including by promoting accountability, transparency, and competition.

The Executive Order goes on to direct the Chairman of the SEC, the Chairman of the FTC and the Secretary of Labor to take a number of rulemaking and investigative actions.

The Executive Order specifically directs the SEC Chairman to:

– Consistent with the APA, “consider revising or rescinding those rules, regulations, guidance, bulletins, and memoranda that are inconsistent with the purpose of this order, especially to the extent that they implicate ‘diversity, equity, and inclusion’ and ‘environmental, social, and governance’ policies;”

– Consistent with the APA, “consider revising or rescinding all rules, regulations, guidance, bulletins, and memoranda relating to shareholder proposals, including Rule 14a-8 (17 CFR 240.14a-8), that are inconsistent with the purpose of this order;”

– Enforce the antifraud provisions of the federal securities laws with respect to material misstatements or omissions contained in proxy advisors’ proxy voting recommendations;

– Assess whether to require proxy advisors whose activities fall within the scope of the Investment Advisers Act of 1940 to register as registered investment advisers;

– Consider requiring proxy advisors to provide increased transparency on their recommendations, methodology, and conflicts of interest, “especially regarding ‘diversity, equity, and inclusion’ and ‘environmental, social, and governance’ factors;”

– Analyze whether, and under what circumstances, a proxy advisor serves as a vehicle for investment advisers to coordinate and augment their voting decisions with respect to a company’s securities and, through such coordination and augmentation, form a group for purposes of sections 13(d)(3) and 13(g)(3) of the Securities Exchange Act of 1934; and

– Direct the SEC staff to examine whether the practice of registered investment advisers engaging proxy advisors to advise on (and following the recommendations of such proxy advisors with respect to) non-pecuniary factors in investing, including, as appropriate, “diversity, equity, and inclusion” and “environmental, social, and governance” factors, is inconsistent with their fiduciary duties.

The Executive Order directs the FTC Chairman to “review ongoing State antitrust investigations into proxy advisors and determine if there is a probable link between conduct underlying those investigations and violations of Federal antitrust law,” as well as to “investigate whether proxy advisors engage in unfair methods of competition or unfair or deceptive acts or practices that harm United States consumers.”

The Executive Order also directs the Secretary of Labor to “take steps to revise all regulations and guidance regarding the fiduciary status of individuals who manage, or, like proxy advisors, advise those who manage, the rights appurtenant to shares held by plans covered under the Employee Retirement Income Security Act of 1974 (ERISA) (29 U.S.C. 1001 et seq.), including proxy votes and corporate engagement, consistent with the policy of this order.” Further, the Secretary of Labor is directed to “take all appropriate action to enhance transparency concerning the use of proxy advisors, particularly regarding “diversity, equity, and inclusion” and “environmental, social, and governance” investment practices.”

The White House also issued a Fact Sheet regarding the Executive Order. Clearly, the SEC now has a lot to do on the topic of proxy advisory firms!

Programming Note: We’re starting our holiday blogging schedule tomorrow, which means that, absent some earth-shattering developments, this blog won’t be back until after January 1, 2026. Happy holidays, and best wishes to all of our readers for the new year!

– Meredith Ervine 

Here it is! The Delaware Supreme Court’s decision on Musk’s compensation we’ve been waiting for.

On Friday, the Court issued its decision in In re Tesla, Inc. Derivative Litigation. The case was heard en Banc (all the justices) and it was issued per curium (not authored by or attributed to a specific judge). The decision was 49 pages. Not short, necessarily, but also not a novel, so it won’t take too much of your time to read the whole thing. The comparative brevity may not be surprising given this:

Although the Justices have varying views on the liability determination, we agree that rescission was an improper remedy and therefore choose that narrower path to resolve this appeal.

As Law Prof Ann Lipton notes on the Business Law Prof Blog:

[T]he Delaware Supreme Court did not question any of Chancellor McCormick’s actual findings regarding how Musk’s 2018 pay package was negotiated, the control and interference that Musk exercised over the process, or even the unfairness of the award itself. Instead, the sole basis for the holding is a kind of Rumpelstiltskin argument: the plaintiffs used the word “rescission” when requesting a remedy, but this case does not meet the technical requirements for rescission – because rescission requires that both parties be restored to the status quo ante, and there’s no way to give Musk back his years working for Tesla after 2018. “It is undisputed,” said the Court, “that Musk fully performed under the 2018 Grant, and Tesla and its stockholders were rewarded for his work.” [Links added by me]

Since rescission was not the appropriate remedy, and the plaintiff “did not offer another form of appropriate relief, the most he can receive is an ‘assessment of nominal damages.’” The Court ultimately awarded $1 to Tornetta.

Various media outlets reported that the compensation package is now worth $139 billion. The WSJ says that amount is “more than the combined compensation realized by the CEOs of all other S&P 500 companies over the decade ending last year, according to Equilar, a pay data firm.” They also note that, while this outcome likely means that the $23.7 billion interim award Tesla announced in August – which was intended to make up for the 2018 option award and structured to avoid “double dipping” if he ended up being entitled to his original 2018 award as he now is (I guess that $0 accounting value was a good guess) – the same is not true of the most recently approved space station of a pay package.

– Meredith Ervine

Over on TheCorporateCounsel.net, we’ve been sharing a few “blocking & tackling” reminders for our members who are beginning to think about their Form 10-K and proxy statement. This blog from Winston & Strawn (soon to be Winston Taylor) shares reminders specific to executive compensation. Here’s an excerpt:

– Pay vs. Performance – The 2025 proxy season marked the third year that companies provided pay versus performance (PVP) disclosures under Item 402(v) of Regulation S-K. Large accelerated filers, which first became subject to the rule at its effective date, have now completed the phase-in period and, for the first time, are providing a full five years of PVP disclosure. [… Even though PVP as we know it may be withdrawn,] companies should be prepared to include the usual disclosure in their 2026 proxy statements and take note of any phased-in requirements to which they are newly subject. The SEC continues to require inline XBRL tagging for PVP disclosures, but SRCs are exempt from this requirement until their third filing of PVP disclosures. Therefore, some SRCs may still be exempt for the 2026 proxy season, depending on their individual filing history.

– CEO Pay Ratio Disclosure – Companies are likely familiar with the requirement to disclose in their proxy statements a ratio comparing their CEO’s total compensation (which covers all the components of total compensation disclosed in proxy statements, including base salary, bonus, and equity and non-equity incentives) to the total compensation of a median employee. Although companies may refer to the same median employee for up to three years, those that have undergone significant changes to their workforces or their employees’ compensation may need to redetermine a median employee sooner. Companies making significant workforce adjustments in 2025 should prepare for any required adjustments to their pay ratio disclosures as early as possible.

– Pay Adjustments – In addition to companies dealing with low say-on-pay vote results from last year, any company that has made adjustments to 2025 compensation will need to address these matters in this year’s CD&A. Clear and effective narrative explanation of the rationale for such adjustments, including how they align with company goals, performance outcomes, and board oversight, will be increasingly important to demonstrate responsiveness to shareholder feedback and governance best practices in the 2026 proxy season.

– GAAP Reconciliation – Companies are not required to provide a GAAP reconciliation when disclosing non-GAAP performance targets or results compared to performance targets in the CD&A, provided that they explain how these figures were calculated from their financial statements. However, for all other purposes, companies must include a GAAP reconciliation when disclosing non-GAAP financial measures. Companies may provide this reconciliation in an annex to the proxy statement with a conspicuous cross-reference or by conspicuous cross-reference to a reconciliation in their Form 10-K.

The blog also urges companies to plan ahead for any new or amended equity compensation plans – in particular, now is the time to start modeling overhang:

As a reminder, when determining whether to recommend “for” or “against” an equity compensation plan proposal, ISS applies its own “equity plan scorecard.” Specifically, the ISS scorecard evaluates three key pillars: (i) plan cost, (ii) plan features, and (iii) the company’s historical grant practices.

Companies should review their equity compensation plan proposals with their independent compensation consultants and assess whether such proposals are likely to receive a positive scorecard result and favorable ISS recommendation when considering issues like the size of the plan’s share pool and the company’s overhang and burn rate. Given increasing investor focus on dilution and overhang, companies should engage with compensation consultants early to model share utilization scenarios under different plan proposals.

Of course, this isn’t just the season for proxy disclosure – we’re also heading into the time of year when many compensation committees will be considering executive pay structures for 2026. The blog points out that AI-related responsibilities and goals may factor into this year’s plans:

Additionally, as artificial intelligence (AI) becomes a strategic priority for an increasing number of businesses, companies have begun to expand the responsibilities of their executives or even added new executive-level roles focused exclusively on AI. Expanding the responsibilities of existing executives may justify increased compensation, while new hires may command high sign-on bonuses in the current competitive talent market. Companies should be ready to justify these compensation decisions, especially while benchmarking data is limited. Since companies will vary greatly in how critical AI is to their business, an individualized assessment and explanation is key. If companies choose to use performance awards with metrics based on the successful adoption of AI, they should also consider how they will measure and disclose performance achievement of those metrics.

Altogether, these are good reminders that a little upfront work can go a long way toward a smoother 2026 proxy season.

– Liz Dunshee

I always look forward to the annual Corporate Governance & Executive Compensation Survey from A&O Shearman. With some wondering whether the newish disclosure requirement about equity awards in relation to MNPI will end up on the cutting room floor as part of the SEC’s disclosure reform initiative, I was curious whether there’s much variation in Item 402(x) disclosure practices to-date. Here’s what the survey found:

– Top 100 companies

– 14% disclosed an equity grant proximate to the release of material non-public information

– 10% said they expressly prohibit in their insider trading or other policy the grant of awards when the company is in possession of MNPI

– 27% do not disclose a written policy, but do disclose a practice of not granting awards when the company is in possession of MNPI

– 53% of companies have pre-determined grant dates that do not factor in MNPI

– 10% have no policies or practices related to grants in proximity to MNPI

– S&P 500 companies

– 10% disclosed an equity grant proximate to the release of MNPI

– 10% said they expressly prohibit in their insider trading or other policy the grant of awards when the company is in possession of MNPI

– 35% do not disclose a written policy, but do disclose a practice of not granting awards when the company is in possession of MNPI

– 42% of companies have pre-determined grant dates that do not factor in MNPI

– 14% have no policies or practices related to grants in proximity to MNPI

– Russell 3000 companies

– 9% disclosed an equity grant proximate to the release of MNPI

– 10% said they expressly prohibit in their insider trading or other policy the grant of awards when the company is in possession of MNPI

– 40% do not disclose a written policy, but do disclose a practice of not granting awards when the company is in possession of MNPI

– 33% of companies have pre-determined grant dates that do not factor in MNPI

– 17% have no policies or practices related to grants in proximity to MNPI

Other compensation topics covered this year include perks, pay versus performance, human capital management, and say-on-pay.

– Liz Dunshee

Taking a company public is a big milestone – and it can have a big impact on how the business manages talent, incentives and performance. This FW Cook blog dives into trends in long-term incentive programs for companies that IPOed during 2020 and 2021 – specifically, in the tech industry. This data can be helpful to see if you’re on the verge of an IPO or if you recently went public. Here’s an excerpt:

When companies are newly public, they often focus on rapid growth, with equity awards designed to encourage and reward large scale increases to stock price over a short time horizon. Companies at this stage also typically have difficulty projecting multi-year performance, which makes granting performance-based equity challenging and risky. However, as companies mature in the public market, there is a clear shift toward performance-based LTI structures.

At newly public technology companies, it is more common to grant time-based LTI only, with 77% using stock options, RSUs, or a mix of the two, and only 23% issuing performance-based LTI. After two to three years as a public company, however, 39% of the companies studied included some performance-based component.

The blog goes on to analyze the rationale for different LTI mix combinations – from use of simple one-vehicle LTI awards to using options, RSUs and performance equity to encourage operational excellence in addition to revenue growth. The FW Cook team notes that market volatility and changing business conditions can also influence award design as a company matures.

– Liz Dunshee

Heads up! For sign-on and retention bonuses that are memorialized on or after this upcoming January 1st, you may need to consider a new California law – California Assembly Bill 692. Here’s an excerpt from a recent Cooley alert:

For employment contracts entered into on or after January 1, 2026, the new law generally prohibits inclusion of (or requiring a worker to execute as a condition of employment or work relationship a contract that includes) any provision:

– Requiring the worker to pay an employer, training provider or debt collector for a debt if the worker’s employment or work relationship with a specific employer terminates.

– Authorizing the employer, training provider or debt collector to resume or initiate collection of or end forbearance on a debt if the worker’s employment or work relationship with a specific employer terminates.

– Imposing any penalty, fee or cost on a worker if the worker’s employment or work relationship with a specific employer terminates.

There are exceptions to these general prohibitions, but the new law may dramatically restrict many currently common employment practices. For example, it appears that it will be impermissible to require repayment of a sign-on bonus without compliance with one of the specific exceptions.

This Greenberg Traurig blog explains that a sign-on bonus must meet all of the following conditions for its repayment obligation to comply with AB 692:

– Separate Agreement: The repayment obligation terms are set forth in a separate agreement from the primary employment contract (e.g., offer letter or employment agreement);

– Five Day Review Period with Attorney: The employee is notified that they have the right to consult an attorney regarding the agreement and provided at least five business days to do so before signing;

– Two Year Maximum: The retention date may be no longer than two years from the date the sign-on bonus is paid;

– No Interest: The repayment obligation is not subject to interest accrual;

– Prorated Repayment: The repayment obligation must be prorated based on the date of employment separation in relation to the original payment date and the retention date (for example, if the retention date is two years from the date of payment, and the employee voluntarily resigns after exactly one year, the repayment obligation cannot exceed 50% of the sign-on bonus);

– Option to Defer Payment: The employee has an option to defer receipt of the sign-on bonus until the retention date without any repayment obligation; and

– Only Repayable for Certain Separations: The separation from employment triggering the repayment obligation must be due solely to the election of the employee (i.e., voluntary resignation) or at the election of the employer based on the employee’s misconduct. In other words, a layoff or other non-misconduct related involuntary resignation may not trigger a repayment obligation.

The GT blog goes on to say that the law is even tougher on retention bonuses – employment agreements may not include a repayment obligation, regardless of the specific terms. So, if you envision retention bonuses in the near future, and want them to be repayable if the person later leaves, it looks like you should call your employment lawyer and try to get those contracts executed before year-end! If you can’t get that done, though, all is not lost. The blog offers ideas on alternative structures once the law goes into effect.

The law appears to be broadly drafted to apply to any company employing workers in California – and some commentary out there says that an agreement signed in California will continue to be subject to the restriction even if the employee later moves out of state. But as this Akin Gump memo points out, AB 692 leaves a lot of questions unanswered – so again, it’ll be important to work with counsel on your specific circumstances.

– Liz Dunshee

Thanks to speakers Jeff Joyce of Pay Governance and Sheri Adler and David Kaplan of Troutman Pepper Locke for reminding me of a 2024 development in last week’s webcast “Equity Award Approvals: From Governance to Disclosure” (replay available for on-demand viewing) and sharing a great reminder for 2026 proxy statements. During the program, David raised the 2024 lawsuit against Apple alleging that Apple’s proxy disclosure was misleading because the target value disclosed in the CD&A did not match the compensation expense. The two values didn’t match because Apple determines the number of PSUs to be granted by dividing the target value by the closing stock price on the date of grant, rather than using a Monte Carlo simulation, which is what is required to determine accounting expense and reported in the Summary Compensation Table.

If you’re thinking, “wait, tons of companies do this,” that’s true. (David, Jeff and Sheri discussed why this method is sometimes used instead of a Monte-Carlo model.) And, as Liz shared at the time, the court ultimately dismissed the complaint with prejudice. But, as David noted during the program, Apple had clear disclosure explaining the method used by the compensation committee and the difference in the accounting valuation. Many other companies are not as explicit. So I pulled up Apple’s 2025 proxy, and I completely agree. If this is applicable to your company, the relevant footnote from Apple’s Summary Compensation Table is below. You may want to compare your disclosure and consider improvements. I particularly like that Apple repeats the target values from the CD&A in the footnote.

The target grant value of Mr. Cook’s long-term equity award was $50 million for 2024, $40 million for 2023, and $75 million for 2022. The target grant value of our other named executive officers’ long-term equity awards was $20 million for each of 2024, 2023, and 2022. This column shows the grant date fair value for accounting purposes of the long-term equity awards granted to our named executive officers. The grant date fair value for time-based RSUs is measured in accordance with FASB ASC 718 and based on the closing price of Apple’s common stock on the date of grant. The grant date fair value for performance-based RSUs is calculated using a Monte-Carlo model for each award on the date of grant, as determined under FASB ASC 718, based on the probable outcome of the performance condition as of the grant date. The grant date fair value for each award may differ based on the applicable data, assumptions, and estimates used in the model. See footnote 1 to the table entitled “Grants of Plan-Based Awards 2024.”

While you’re at it, you might as well check your disclosure about equity award valuations & assumptions against Instruction 1 to Item 402(c)(2)(v) and (vi) of the Summary Compensation Tables rules.

– Meredith Ervine