In our blogs on the recent big announcements by the proxy advisors — Glass Lewis moving away from “singularly-focused research and vote recommendations based on its house policy” and ISS now offering two new research services meant to support institutional investor proprietary investment stewardship programs — we’ve focused on the increasing uncertainty for companies. As this Compensia alert puts it, this “broad reorientation of the proxy advisor landscape centered on investor-specific customization” and the “resulting fragmentation of viewpoints and voting behavior will require more proactive, data-informed strategies.”
But, as the alert points out, there is also a silver lining for companies and compensation committees that feel like they’ve been constrained in their compensation program design by the proxy advisors’ historically standardized benchmark voting recommendations.
Increased Flexibility in Pay Design. With proxy advisor benchmark policies becoming less influential, companies have greater flexibility to tailor incentive plan designs to meet their individual needs. However, this flexibility increases the importance of understanding and considering the specific priorities and policies of key investors when making and communicating design decisions.
But, yes, that may mean more work for compensation committees. Compensia suggests that committees:
– Map your top investors’ voting policies and identify where views diverge (e.g., preferred metrics, performance periods, equity mix).
– Pressure-test incentive design decisions against those investor perspectives before finalizing awards.
– Engage early and often, before you file your 2026 proxy statement to understand how key shareholders’ policies may be evolving.
– Know which investors already follow in-house policies. Track how and when shareholders transition to new ISS and/or Glass Lewis frameworks.
– Reassess vote forecasting tools. Move away from reliance on benchmark-based models toward more tailored approaches informed by shareholder engagement.
– Refresh governance and compensation messaging. Ensure CD&A and proxy statement summaries clearly articulate the “why” behind key pay decisions and governance practices.
The key compensation-related change is that, as previewed, Glass Lewis has updated its pay-versus-performance model. Here’s more from Dave:
Enhanced Pay-for-Performance Evaluation: Glass Lewis has updated its pay-for-performance model to adopt a scorecard-based approach. Instead of assigning a single letter grade (A–F), the model now consists of up to six tests, each receiving an individual rating. These ratings are aggregated on a weighted basis to produce an overall score ranging from 0 to 100. This change is intended to provide a more nuanced and transparent assessment of executive compensation alignment with company performance.
In light of a recent announcement, the benchmark policy now includes this note:
For 2026, the language in this document has been updated to clarify that these guidelines contain the views of the Benchmark Policy. The Benchmark Policy reflects broad investor opinion and widely accepted governance principles and is intended to provide clients with nuanced analysis informed by market best practice, regulation, and prevailing investor sentiment.
This change better conveys Glass Lewis’ role as a service provider to a diverse, global client base with a wide spectrum of viewpoints and objectives. The Benchmark Policy represents just one of Glass Lewis’ policy offerings.
Companies are still finding goal-setting to be especially challenging in this uncertain environment. Pay Governance reports that some compensation committees are considering some more unique, and more flexible approaches to incentive design to reduce the risk of payouts that, on one end of the spectrum, demotivate employees and, on the other end, vex shareholders. One of those unique approaches is the use of relative metrics — that is, beyond rTSR. This latest Pay Governance piece says:
[R]elative TSR can be influenced by factors outside of management’s control and provides less direct line of sight to the financial/operational goals the management team may need to focus on. Relative financial metrics, on the other hand, can provide direct focus to the management team on core financial measures in the company’s business plan while also avoiding the need to set goals in an uncertain environment.
Pay Governance researched S&P 500 proxy disclosures and found that:
– Only 3% of utilized relative financial metrics in 2024 STI plans, while 13% used them in LTI plans. These figures have generally held steady since 2019.
– Relative financial metrics were more common at companies in Financial Services and Industrials with prevalence of 30% and 21% respectively in 2024.
– Return and profit metrics are the most prevalent, followed by revenue. Return metrics include metrics such as return on equity and return on capital. Profit metrics include metrics such as earnings per share, operating margin, and net income.
– For both relative profit and revenue metrics, performance is typically measured in terms of growth over a specified period, regardless if included in STI or LTI plans.
– Among LTI plans, the most common performance period is three years.
– The majority of companies using relative financial metrics incorporate them as weighted metrics as opposed to incorporating as a modifier on the overall results.
But relative metrics come with their own challenges. Pay Governance says that, while relative metrics have some clear pros — rewarding outperformance, alleviating the need to set absolute goals, easier performance curves, potentially less payout volatility and possibly favorable perception by investors — they also have some procedural cons — including potential delay and difficulty in calculating results for the comparator group, challenges with defining the comparator metric (“e.g. change over the period versus absolute results, safeguards for mergers and acquisitions, adjustments, etc.”) and challenges with comparing non-GAAP metrics. Nothing’s ever easy!
Yesterday on TheCorporateCounsel.net, Meredith shared a speech from SEC Chair Paul Atkins about “Revitalizing America’s Markets at 250.” One takeaway was that executive compensation disclosure reform is still very much on the Chair’s priority list – probably fitting under the umbrella of “Rationalization of Disclosure Practices” on the Reg Flex Agenda that was published a few months ago. Moreover, when they press the reset button, Chair Atkins’ speech suggests that a driving principle for any revised rules will be a focus on financial materiality.
Here’s an excerpt:
When the SEC’s disclosure regime has been hijacked to require information unmoored from materiality, investors do not benefit. In his recent and final Thanksgiving letter to shareholders, Warren Buffett highlighted a prime example of this hazard. Any summary I give cannot do justice to Mr. Buffett’s own words. So, I quote for you the following excerpt from his letter:
During my lifetime, reformers sought to embarrass CEOs by requiring the disclosure of the compensation of the boss compared to what was being paid to the average employee. Proxy statements promptly ballooned to 100-plus pages compared to 20 or less earlier.
But the good intentions didn’t work; instead they backfired. Based on the majority of my observations – the CEO of company “A” looked at his competitor at company “B” and subtly conveyed to his board that he should be worth more. Of course, he also boosted the pay of directors and was careful who he placed on the compensation committee. The new rules produced envy, not moderation.
The ratcheting took on a life of its own.
I share Mr. Buffett’s observations and concerns, which is why earlier this year, the SEC held a roundtable that brought together companies, investors, law firms, and compensation consultants to discuss the current state of the agency’s executive compensation disclosure rules and potential reforms. Somewhat to my surprise, there was universal agreement among the panelists that the length and complexity of executive compensation disclosure have limited its usefulness and insight to investors. We need a re-set of these and other SEC disclosure requirements, and this roundtable was one of the first steps to execute my goal of ensuring that materiality is the north star of the SEC’s disclosure regime.
Among other topics, Chair Atkins also reiterated his focus on disclosure accommodations for smaller and newly public companies – which may overlap with updates to executive compensation disclosure rules.
It may be too ambitious to hope for a rule proposal under the Christmas tree this year, but hey – my daughter is convinced she’ll get a unicorn. So, in the spirit of these holidays, I’m going to follow her lead and dream big. At any rate, it seems like it’ll be something to look forward to in the new year.
Meridian recently published its 2025 Corporate Governance & Incentive Design Survey. The survey contains 54 pages of benchmarking data, pulled from the latest proxy statements of 200 large-cap companies (median revenue of $25.4 billion and median market cap of $46.5 billion).
Here’s the scoop on proxy disclosure practices and compensation-related shareholder proposals:
– Compensation-Related Shareholder Proposals Decline; Support Remains Low: In 2025, 14% of companies received at least one compensation-related shareholder proposal. Most compensation-related shareholder proposals continue to receive limited shareholder support.
– Nearly All Companies Engage in Shareholder Outreach: 96% of the Meridian 200 disclose shareholder outreach efforts. 50% of the Meridian 200 provide specific details on feedback received and/or actions taken as a result of the feedback.
– SEC “Pay Versus Performance” Disclosures Remain Consistent: Consistent with last year, most companies (80%) choose to compare TSR against an industry specific index and a strong majority of companies (92%) use graphical disclosure to depict the relationship between “compensation actually paid” and performance.
Diving into shareholder proposals, the most common proposal topic that made it into company proxy statements related to ratification of severance pay. Aside from “other,” the second most common proposal encouraged companies to de-link pay from ESG metrics.
The decrease in compensation-related proposals was consistent with the decrease in number of Rule 14a-8 shareholder proposals across the board, a topic we’ve been covering on The Proxy Season Blog on TheCorporateCounsel.net. It will be interesting to see what happens in the coming season in light of this trend line and the gauntlet that SEC Chair Paul Atkins threw down a couple weeks ago.
The survey also covers annual & long-term incentive design practices, corporate governance practices, and clawback policies.
Tune in at 2:00 pm Eastern tomorrow — Wednesday, December 3rd — for our webcast “Equity Award Approvals: From Governance to Disclosure” to hear Jeff Joyce of Pay Governance and Sheri Adler and David Kaplan of Troutman Pepper Locke discuss common foot faults for equity award approvals and share best practices to help you dot your i’s and cross your t’s when awarding equity in 2026. Among other topics, this program will cover:
– Not Your Kindergartener’s Math: Share Counting
– Planning Ahead: Award Design
– Approval Formalities:
– Who Approves?
– What Gets Approved?
– Grant Timing, Sizing and Disclosure
– Documenting and Communicating Awards
Members of this site can attend this critical webcast at no charge. If you’re not yet a member, you can sign up by contacting our team at info@ccrcorp.com or at 800-737-1271. Our “100-Day Promise” guarantees that during the first 100 days as an activated member, you may cancel for any reason and receive a full refund. The webcast cost for non-members is $595.
We will apply for CLE credit in all applicable states (with the exception of SC and NE which require advance notice) for this 60-minute webcast. You must submit your state and license number prior to or during the program using this form. Attendees must participate in the live webcast and fully complete all the CLE credit survey links during the program. You will receive a CLE certificate from our CLE provider when your state issues approval; typically within 30 days of the webcast. All credits are pending state approval.
This program will also be eligible for on-demand CLE credit when the archive is posted, typically within 48 hours of the original air date. Instructions on how to qualify for on-demand CLE credit will be posted on the archive page.
In this program, you will hear directly from Staff in the SEC’s Division of Corporation Finance about important takeaways from the Statement, the Staff’s procedural expectations for this year, and common questions. Additionally, Gibson Dunn’s Ron Mueller and Cooley’s Reid Hooper will be joining the program to share practical tips on navigating the new process – and its potential consequences for companies.
There are a few important things to know about this webcast that are different from our typical programming:
1. It’s free for anyone who wants to attend, even if you aren’t currently a member of TheCorporateCounsel.net. We want to do what we can to get the word out about the Staff’s approach so that the season is as smooth as possible for everyone (especially given the Staff’s workload after the shutdown).
2. It’s happening from 11:00 am – 12:00 pm Eastern.
3. Since this is a pop-up webcast, we aren’t offering CLE credit for this one. Members of TheCorporateCounsel.net can get lots of live and on-demand credits through our other programs, though! As you can see on that site’s home page, we have several good upcoming programs in December – including a program with former high-level Corp Fin Staff on December 11th, which will include practical guidance for companies to navigate this Rule 14a-8 process and other important SEC and Corp Fin initiatives.
There are a number of open issues to consider when it comes to how this year’s shareholder proposal process will play out, and you’ll want to have a strategy if you get a proposal relating to severance arrangements or other matters. So tune in tomorrow to hear the very latest on the Staff’s expectations and other practical pointers!
Yesterday afternoon (and earlier than usual!), ISS announced final updates to its 2026 benchmark proxy voting policies, which will generally apply to shareholder meetings held on or after February 1, 2026. Based on the handy executive summary of the changes ISS prepares, the final compensation-related updates are largely consistent with those proposed for comment back in October, with one non-substantive addition. The full policy updates document details all the changes (shown in redline).
Below is an excerpt from the executive summary for a reminder of the compensation-related changes that are consistent with the proposal.
– Long-Term Alignment in Pay-for-Performance Evaluation: Updates U.S. pay-for-performance quantitative screens to assess pay for performance alignment over a longer-term time horizon, considering a five-year period, above the current three years, while also maintaining an assessment of pay quantum over the short term.
– Time-Based Equity Awards with Long-Term Time Horizon: This policy update reflects the importance of longer-term time horizons for time-based equity awards and provides for a more flexible approach in evaluating the equity pay mix in pay-for-performance qualitative reviews.
– Company Responsiveness: Expands flexibility for companies to demonstrate responsiveness to low say-on-pay support, in light of recent SEC guidance on 13G vs. 13D filing status that may limit shareholder engagement.
– High Non-Employee Director Pay: Expands existing policy that addresses high NED pay practices, allowing for adverse recommendations in the first year of occurrence if considered highly problematic, or when a pattern emerges across non-consecutive years.
– Enhancements to Equity Plan Scorecard: Adds a new scoring factor under the Plan Features pillar to assess whether plans that include non-employee directors disclose cash-denominated award limits, and introduces a new negative overriding factor for equity plans found to be lacking sufficient positive features under the Plan Features pillar despite an overall passing score.
The new change reflects the addition of a cross-reference in the “Compensation Committee Communications and Responsiveness” policy, rather than repeating the factors from the say-on-pay responsiveness policy:
– Compensation Committee Responsiveness: Streamlines policy language by removing duplicated factors for evaluating responsiveness to shareholder input on executive pay. The section now cross-references the factors listed under the Board of Directors policy.
Also, check out Liz’s blog today on TheCorporateCounsel.net for a summary of the corporate governance-related updates for US companies.
Programming Note: You won’t find a blog email in your inbox tomorrow since we’re pausing our blogs for the holiday. Happy Thanksgiving, everyone! We’ll see you back here Monday.
After the SEC Staff’s February Schedule 13G guidance, there was concern that companies that saw their say-on-pay approvals fall below the key 70% threshold for ISS and 80% threshold for Glass Lewis in 2025 (triggering the proxy advisor “responsiveness” policies) may — if institutional investors are reluctant to provide feedback — have a harder time making the disclosures proxy advisors expect to see. Thankfully, the proxy advisors have recognized that this may be a challenge in 2026. ISS has already announced proposed changes to its benchmark voting policies, which contemplate this addition to its policy on company responsiveness to low say-on-pay:
If the company discloses meaningful engagement efforts, but in addition states that it was unable to obtain specific feedback, ISS will assess company actions taken in response to the say-on-pay vote as well as the company’s explanation as to why such actions are beneficial for shareholders.
Notably, this is a narrow change. The policy still expects companies to put in the same engagement efforts that they have in the past. If anything, this change may result in longer disclosures since presumably many companies will hear specific feedback from some investors, but not others, and, in the absence of extensive, consistent feedback, may need to provide a longer explanation of the “specific and meaningful actions taken” in response.
We’re well into the “off-season,” and this Winston blog on executive compensation issues and considerations for the 2026 proxy season says that companies with a low say-on-pay outcome last year should make an engagement plan, if they haven’t already, and start planning the related CD&A disclosure.
A well-executed action plan for shareholder outreach and engagement should include:
– reviewing proxy advisors’ reports from the prior year’s proxy to identify key issues flagged as concerns;
– evaluating how the company’s peer group is addressing executive compensation matters;
– assessing the company’s shareholder base to determine which investors should be engaged;
– planning shareholder meetings with clear talking points addressing key issues; and
– coordinating a response with both the engagement team and the compensation committee following shareholder meetings.
It will also be important for companies with lower say-on-pay results to clearly and effectively disclose in this year’s CD&A the rationale for 2025 compensation decisions, as well as any changes the compensation committee made to address shareholder concerns, including through shareholder outreach and engagement. In addition, companies and compensation committees should engage with advisors early to anticipate proxy advisor say-on-pay voting recommendations for the upcoming proxy season, considering both the quantitative assessments and qualitative evaluations that these firms will conduct.
If you’re in this boat, you should plan to tune in for our annual webcast “The Latest: Your Upcoming Proxy Disclosures” on Tuesday, January 20, at 2 pm ET. I know it’s a while from now, but you won’t want to miss this one! Head over to the webcast landing page to add it to your calendar.
CEO transitions are tough. But when other management changes immediately follow, an otherwise difficult (but not uncommon) event in a company’s history can turn into an unprecedented period of upheaval. Some boards try to avoid this with one-time grants to other members of the C-suite. Five years ago, FW Cook assessed the retentive effect of these grants and recently revisited the topic with an update to its prior study, which now also considers the retentive value of existing equity awards. Here’s an excerpt:
Our prior study found that special one-time equity grants made to the leadership team have a strong retention effect in the short term, but that the effect wanes quickly.
The findings in our updated study are largely aligned with those of the original analysis. Particularly, special equity grants made to non-CEO executives in the wake of CEO turnover continue to show a strong, but limited, retentive effect – typically lasting approximately two to three years. Prevalence and design of such awards remain consistent, although the dollar value of such awards has increased materially.
Both the original and updated studies show that the retentive power of special equity grants is strongest in the three year window following CEO turnover. Among NEOs who eventually depart the company, those who did not receive such a grant typically leave within the first year, while those who do receive a grant typically do so at year three – aligned with the most common vesting period of retention awards.
With additional data analyzed in this study, it also uncovered some new findings.
– Non-CEO executive grants are twice as common when the CEO is an external hire.
– A correlation between total outstanding equity and length of retention was identified, regardless of whether special retention grants were made.
These grants are made by a minority of companies (36%), but based on these findings, it sounds like you may want to seriously consider them if:
– Your incoming CEO is an external hire;
– Non-CEO NEOs do not already have significant unvested equity; and
– The company will benefit from extending retention from 1 year (the average tenure post-CEO turnover without retention awards) to 3 years (the average tenure post-CEO turnover with retention awards).