It’s hard to believe that we are already into the second quarter of 2026. If you’re involved with executive compensation, public company disclosures, and corporate governance, you still have a lot to look forward to. In particular, we expect the SEC to propose significant rule changes – including on executive compensation disclosure – as soon as this summer.
Our fall conferences – happening October 12th & 13th in Orlando – will be the perfect opportunity to understand how new rules could affect your company and board. We will be covering all the hot topics! Now is the time to register – our “super early bird” rate ends tomorrow, Friday, April 3rd! This rate applies to both in-person and virtual attendance. Register online at our conference page or contact us at info@CCRcorp.com or 1-800-737-1271 by tomorrow, April 3rd, to lock in the best price.
Last year, nearly 25% of Russell 3000 companies submitted an equity plan proposal to a shareholder vote. Under current voting frameworks, most companies need to go back for approvals every 2 to 3 years – and while 99% of companies get the support they need, there are always a few outliers.
For obvious reasons, you want to do whatever you can to stay out of that category. This Pay Governance memo shares what you can do to increase the likelihood of a successful outcome:
1. Analyze the share reserve pool under various stock price scenarios to estimate how many shares are needed over the next 1 to 3 years.
2. Calculate current and potential dilution levels and share usage levels on an absolute basis and relative to the company’s peer group and overall industry sector.
3. Understand the voting guidelines on new share requests of the company’s largest institutional shareholders, including any brightline policies such as excessive dilution or burn rate thresholds.
4. Understand proxy advisor “dealbreakers” and estimate the likelihood of proxy advisors’ vote recommendations on the proposal. If opposition is anticipated, consideration should be given to engaging with the largest shareholders well before the annual shareholder meeting. (Remember, ISS introduced a new negative overriding factor for 2026, which makes plan features extra important.)
5. Ensure the proxy disclosure of the equity plan proposal is clear and complete. Within the equity plan proposal disclosure, highlight shareholder friendly design features and practices (e.g., reasonable dilution and share usage levels, requiring shareholder approval of option repricings or cash buyouts) and the role equity plays in attracting, motivating, and retaining employees as well as why it is important to the success of the company.
The memo notes that some industries tend to fare better than others with their equity plan proposals – by far, communications services drew the most opposition from proxy advisors in 2025. ISS opposition was also relatively higher in pharma/biotech, information technology, consumer discretionary, and real estate – compared to industries like utilities and energy.
According to the Investment Committee presentation, the updated framework is intended to further align the interests of executives with long-term shareholders. My take in looking at the framework’s “foundational priorities” is that CalPERS wants more than just alignment between pay and long-term performance – it also wants pay programs to be transparent and understandable. This isn’t a huge substantive change, but it’s spelled out more clearly now. Here’s the full list of these priorities:
• The design and structure of compensation plans should promote long-term shareholder value creation.
• Compensation should not be overly volatile, as significant fluctuations in compensation can undermine the stability and focus required for long-term strategic execution.
• Long-term incentive compensation should be designed to reward senior executives for above market performance, not overall market appreciation.
• Compensation plans should be straightforward and easily understood by both shareholders and executives, avoiding unnecessary complexity that can obscure true performance objectives.
• Compensation plans should not be excessively dilutive to existing shareholders, ensuring that equity awards are granted judiciously and in a manner that preserves long-term value.
• Equity awards should have long multi-year vesting periods to promote a long-term perspective.
• CEOs and senior executives should have significant personal stock ownership in the company.
CalPERS’ quantitative analysis will continue to be in a scorecard format, based on five-year performance and Equilar’s P4P formula. The P4P score looks at realizable pay vs. five-year cumulative TSR. Although that element of the scorecard doesn’t refer to grant date target pay, the overall scorecard continues to look at grant date target pay to assess whether CEO pay incentivizes excessive risk-taking.
The updated framework (and the proxy voting guidelines) also list examples of plan design and governance issues that may result in an “against” vote for say-on-pay. Here are a few factors that might warrant special consideration if CalPERS is a significant shareholder for your company:
• Overly complex plan design
• Excessively high CEO compensation relative to other named executive officers (NEOs)
• Majority of annual equity grants are to NEOs
• CEO-to-median employee pay ratio is disproportionately high
The FAQs are attached as an appendix and give more detail about CalPERS’ preferences for equity award holding periods, peer group benchmarking practices, etc.
Compensation committees with oversight responsibility for human capital management should also know that HCM is one of CalPERS’ three key priorities for 2026. Specifically, as flagged in this presentation, the pension fund is prioritizing:
As discussed in this 32-page Meridian memo, most companies have migrated to using severance agreements for CEOs in lieu of entering into employment agreements when an executive comes aboard. However, employment agreements are still a useful approach for some companies. About 36% of Russell 3000 companies continue to go this route – with it being more prevalent in industries like consumer discretionary, health care, communication services and financial services. Employment agreements are also more common at small-caps than large-caps.
In addition to stats on prevalence, the memo shares trends in key terms from the 100 or so S&P 500 companies that have entered into agreements – including:
• Exclusivity requirements
• Duration and renewal terms
• Compensation provisions
• Post-termination arrangements
• Restrictive covenants and releases
• Clawback provisions
• Change-in-control protections
• Indemnification and D&O insurance requirements
• Administrative provisions
Appendix C gives a convenient summary of typical provisions. In evaluating existing or potential CEO employment agreements, the memo suggests that boards consider whether the agreement:
• Serves as a useful tool for talent acquisition, retention and risk management (which, as noted above, may depend on the company’s size and industry, among other factors)
• Provides competitive levels of compensation, benefits and severance,
• Safeguards corporate interests
• Allows for terms to be reset through sunset provisions
• Reflects the current corporate governance environment
• Addresses dispute resolution
• Complies with applicable regulatory requirements, and
• Includes terms which clearly and unambiguously reflect the intent of the parties.
In December, Liz blogged about a new California law that restricts the ability of companies to require certain repayments by employees upon separation. This WilmerHale alert explains that California isn’t a major outlier here. A few states already have similar requirements (Connecticut and Colorado, for example), and New York is now taking action.
New York’s “Trapped at Work Act” (the “Act”) was enacted on December 19, 2025, and amended on February 13, 2026 [. . .] The Act prohibits an employer from requiring, as a condition of employment, an employee or prospective employee to execute an “employment promissory note”—defined as any instrument, agreement or contract provision requiring an employee to pay the employer a sum of money if the employee’s employment relationship with that employer terminates before the passage of a stated period of time [. . .]
In addition to contracts related to residential property, sabbatical leaves and collective bargaining agreements, the amended Act expressly permits the following types of repayment agreements:
Bonuses and relocation assistance. Agreements requiring repayment of a financial bonus, relocation assistance or other noneducational incentive upon separation from employment are permitted unless (x) the employee was terminated for any reason other than misconduct (which term is not defined but likely has the same meaning as under New York unemployment law) or (y) the duties or requirements of the job were misrepresented to the employee. Unlike its California counterpart and the tuition repayment exception below, this exception does not require a standalone agreement or have other repayment limitations.
Certain tuition assistance. Similar to the California law, employers may recover the cost of tuition, fees and required educational materials for a “transferable credential.” To qualify, the repayment agreement must (a) be in a written contract offered separately from the employment contract; (b) not condition employment on obtaining the transferable credential; (c) specify the repayment amount (not to exceed the employer’s actual cost) in advance; (d) provide for prorated repayment proportional to the total repayment amount and the length of the required employment period with no accelerated payment schedule upon separation from employment; and (e) not require repayment to the employer if the employee is terminated, except if the employee is terminated for misconduct.
Unlike California’s law, the New York Trapped at Work Act does not provide a private right of action. Instead, the New York State Department of Labor is granted authority to bring enforcement actions. Employers found to have violated the Act may be fined between $1,000 and $5,000 per violation, with each affected employee representing a separate violation.
The alert has some suggestions for HR and legal teams:
Employers should review their existing offer letters and any employee repayment policies to ensure that any repayment obligations are compliant with applicable state law.
Personnel responsible for negotiating and drafting employment offers and contracts should be trained on these new laws.
Employers should consult with employment counsel before attempting to collect repayment from a departing employee. Deducting from final wages presents heightened legal risk, particularly in certain jurisdictions.
We’ve talked a lot about the shifting views of proxy advisors and institutional investors toward programs that consist primarily of time-based awards, provided vesting or retention requirements ensure these time-based awards have a sufficiently long-term horizon. This FW Cook insight summarizes the proxy advisor policy shifts concisely:
ISS will no longer automatically criticize companies granting less than 50% in PSUs, provided the time-based equity component is sufficiently “long-term,” defined as meeting one of the following thresholds:
5-year ratable or cliff vesting;
4-year vesting plus a 1-year post-vest holding requirement; or
3-year vesting plus a 2-year post-vest holding requirement.
Glass Lewis will also no longer automatically criticize companies granting less than 50% of LTI in PSUs. However, they will evaluate the overall LTI program holistically. Any reduction in PSUs should be offset by a reduction in target pay opportunity (to account for the greater certainty of time-vested awards), longer vesting periods, and sufficient rationale in the proxy statement.
The insight discusses moves being considered in light of these shifting views — specifically, compensation committees reconsidering where their LTI program falls on the spectrum of performance focus to ownership focus. They call out these examples of changes being considered:
Rebalancing the LTI mix: Reducing PSUs to 30–40% of LTI while allocating the remainder to long-term time-vested equity (e.g., RSUs with a 5-year ratable vest). This preserves a performance component while shifting the center of gravity toward long-term ownership and retention.
Repositioning stock options as “performance-based”: Options inherently carry performance leverage; they only deliver value if the stock price appreciates. But, they are not perceived as “performance-based” by proxy advisors. Attaching a 5-year vest/hold strengthens retention while satisfying proxy advisor expectations. Read FW Cook’s piece Could Stock Options Make a Comeback?
The “1-3-5 PSU”: Maintaining PSUs, but compressing the performance period from three years to one year to mitigate financial goal-setting challenges. Earned shares do not vest until the third anniversary of grant with a subsequent two-year post-vest holding period (i.e., 1-year performance period, 3-year vest, 5-year hold). This design can be further enhanced by applying a relative TSR metric or modifier over the 3-year vesting period.
But they also warn – consistent with Liz’s note that PSUs remain a “safe bet” – that “a premature shift away from PSUs could trigger a low Say-on-Pay vote, regardless of proxy advisor flexibility.” So, they suggest that 2026 be treated as a “diagnosis year” – meaning that compensation committees should focus on evaluating the current program and explore creative alternatives where appropriate.
It’s not particularly surprising, given all the news about executive turnover, that the value of sign-on and retention awards is increasing. Glass Lewis reports that this trend has a lot to do with the number of external hires and the use of make-whole awards.
With boards trying to either ensure a smooth transition, or avoid an unnecessary one, the average value of both sign-on and retention awards grew significantly from 2024 to 2025 among S&P 500 companies. […] One major reason for this trend is the increasing prevalence of make-whole sign-on awards for new NEOs.
Of the awards reviewed during the 2025 proxy season, 23% of sign-on awards were make-whole awards for Russell 3000 companies, up from 19% in 2024. The increase was more significant for S&P 500 companies, with 53% of sign-on awards citing make-whole considerations, a substantial increase from 39% the previous year (45% in 2023).
There’s simultaneously an increasing use of retention awards to avoid the disruption of turnover in the first place, but the blog argues that this can create a “feedback loop” contributing to the rising cost of executive transitions.
Such grants are likely intended, at least in part, to make it more expensive for other employers to poach executives – but run the risk of creating a feedback loop. Increases in the prevalence and value of retention awards can lead to further increases in the use of make-whole awards, which in turn lead back to further increases in retention awards.
Although often viewed with less suspicion than other one-time awards, investors still want more disclosure regarding the circumstances of significant make-whole awards.
In our 2024 Policy Survey, we asked about disclosure expectations for these awards, and found a significant gap in investor and non-investor views (Figure 4). On average, 63.4% of investors expect disclosure of the terms of the award, along with explicit confirmation that awards are time-restricted and the same size as those forfeited, vs. 30.1% among non-investors. By contrast, nearly half of non-investors responded that companies should only need to provide minimum disclosure (48.4% vs. 15.5% of investors).
One U.S. investor stated: “We would prefer a detailed breakdown, but often that is not made available. …[W]e will try to reconcile the terms and value of the award with any previous public disclosures made at the executive’s prior employer. Failing that, we will generally take the company at their word, but would engage if we hold a material position.” […]
Since then, use of the make-whole designation for sign-on awards has risen, as discussed above. In light of this trend and evident disparity in expectations, we followed up on our 2025 policy survey to better understand market perspectives on how make-whole awards are assessed – and in particular, if they are subject to the same level of scrutiny as other sign-on awards.
Non-investors were far more likely to view make whole awards as fundamentally different from other sign-on awards. Investors were split. While the top answer was to treat make-whole grants on the same basis as other sign on awards, nearly as many were willing to view them differently so long as the grants are fully disclosed and clearly equivalent to what was forfeited.
Everyone who works in the life sciences space knows that early-stage pharma, biotech & life sciences companies are their own beast. In all the recent talk about doing away with quarterly reporting, these companies – particularly pre-revenue – have been called out as one group that would uniquely benefit from a shift away from the requirement to file quarterly financial statements, since investors focus on a limited number of key data points and developments, like remaining cash, trial data and regulatory approvals.
Compensation programs for early-stage pharma, biotech and life sciences companies must also be designed to address these differences. This ClearBridge alert says:
Most public companies align executive pay with shareholder value over time. But among PBLS companies, value creation is often binary and episodic, hinging on regulatory approvals, clinical trials, and more […] PBLS companies, particularly earlier-stage, favor tools that align with unpredictable value-creation:
– Stock options preserve cash and reward long-term upsid
[A]s companies grow:
– Restricted stock unit (“RSU”) and performance-vested award prevalence increases, while the prevalence of stock options decreases (though options remain majority practice across all sizes)
– Note: Performance-vested awards typically introduced ~5 years post-IPO
– Most common performance award metrics shift from predominately project milestones to TSR and financial metrics
Because of the inherent volatility, quantums are benchmarked by “dollar value and as a percentage of market cap, to account for valuation swing.” The alert goes into greater detail on the evolution of the vehicle mix and addresses common performance periods and vesting terms.
Here’s the latest 154-page guide for compensation committees from Wachtell. This year’s guide notes that we’re in a state of flux. Here’s an excerpt from the intro:
As we enter the 2026 proxy season, compensation committee members are participating more actively than ever in the process of disclosing executive compensation and soliciting shareholder feedback. Shareholders and proxy advisory firms have increasingly signaled that compensation committees should play a role in seeking input from shareholders on a company’s executive pay philosophy, and committee members are expending increased time and energy to engage with shareholders on these issues.
The preparation of the annual proxy statement, which is often a tool to highlight how executive pay has been tailored in response to shareholder feedback, has evolved into a purpose-driven, intensive collaboration among management, the compensation committee, the compensation consultant, and external legal counsel to produce a document that serves as an executive compensation mission statement, state-of-the-union update on the performance of the business, and catalogue of shareholder engagement efforts, while at the same time complying with technical disclosure rules, the scope and breadth of which are constantly expanding.
Against this backdrop, the state of executive compensation disclosure regulation appears to be in flux, as U.S. Securities and Exchange (“SEC”) Commissioner Paul S. Atkins shared his vision on February 17, 2026 for enacting “SEC disclosure reform” that would prescribe the “minimum effective dose of regulation,” and it remains to be seen how potential changes in the disclosure requirements may impact the role of the compensation committee.
Other developments addressed by this year’s guide include:
– The state of non-compete bans and enforcement actions aimed at anticompetitive activity
– Notable Delaware decisions on compensation
– Whistleblower compliance reviews
– Updates to proxy advisor policies
As usual, the guide includes a sample “Compensation [and Management Development] Committee Charter” as an exhibit, although it notes, “It would be a mistake for any company to simply copy published models. The creation of charters requires experience and careful thought . . . we recommend that each company tailor its compensation committee charter and written procedures to those that are necessary and practical for the particular company.”
Be sure to tune in at 2 pm Eastern today, March 18th, for our webcast – “Pre-IPO Through IPO: Compensation Strategies for a Smooth Transition” – to hear Morgan Lewis’s Timothy Durbin, Alpine Rewards’ Lauren Mullen, Cooley’s Ali Murata, Pearl Meyer’s Aalap Shah, and Latham’s Maj Vaseghi share practical guidance on key compensation considerations from the pre-IPO phase through the offering and into the first chapter of public company life. Our panelists will also address questions submitted by members in advance (the deadline was March 13th).
Topics include:
– Assessing Existing Arrangements and IPO Impact
– Designing and Adopting New Equity Plans and ESPPs; Share Pool Strategy
– Managing “Cheap Stock” Issues; 409A Valuations
– Designing and Communicating Special IPO Awards
– Negotiating New Employment Agreements; Change-in-Control and Severance Terms
– Navigating Lockups, Blackout Periods and Post-IPO Selling Mechanics
– Establishing the Post-IPO Executive Compensation Program
– Building Compensation-Related Policies, Governance and Controls
– Communicating with Executives and Employees Through the Transition
– Transitioning Director Compensation (time permitting)
– Q&A: Answering Questions Submitted in Advance (15 minutes)
Members of this site can attend this critical webcast (and access the replay and transcript) at no charge. Non-members can separately purchase webcast access. If you’re not yet a member, you can sign up for the webcast or a CompensationStandards.com membership 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.
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