ISS recently released their annual update to their benchmark proxy voting policies, which will take effect for shareholder meetings on or after February 1, 2025. This includes updates and clarifications to ISS’ FAQs and methodologies regarding U.S. executive compensation policies. A few of these policy updates were disclosed earlier in the year as off-cycle updates and have now been finalized for the 2025 benchmark proxy voting policies.
Provided below are summaries of the U.S. executive compensation-related policy updates:
ISS’ Updated Policies:
| Policy |
Updates |
| Performance Based Equity Awards Considerations |
- For 2025, any design or disclosure concerns regarding performance-based equity will carry greater weight in the qualitative analysis, and significant concerns in these areas will be more likely to drive an adverse Say-on-Pay recommendation for a company with a pay-for-performance misalignment
- Potential performance-based equity concerns include:
- Non-disclosure of forward-looking goals
- Poor disclosure of payouts and/or design rationale
- Unusually large pay opportunities including maximum payout opportunities
- Overly complex designs
- Non-rigorous goals
- ISS is also considering a potential policy update for 2026 (or later), whereby LTI programs with a preponderance of time-vested awards would no longer in itself raise significant concerns in a company’s qualitative review (ISS is continuing to seek feedback on this topic throughout 2025)
|
| Evaluation of Incentive Plan Metrics |
- ISS reiterates that they do not endorse stock price/total shareholder return and/or any other specific incentive plan metric
- When evaluating incentive plan metrics, ISS notes the following criteria:
- Whether the plan emphasizes objective metrics linked to quantifiable goals
- Metric rationale and relation to company strategy and shareholder value
- Rationale for atypical metrics or significant metric changes
- Clarity of disclosure on adjustments made to non-GAAP metrics
|
| Changes to In Progress Incentive Plans |
- ISS reiterates that they generally view changes to in-progress incentive plans negatively
- If changes occur, companies should provide compelling rationale, including why the adjustments do not circumvent pay-for-performance outcomes
|
| Clawback Policy |
- To receive credit for a “robust” clawback policy in the “Executive Compensation Analysis” section of the research report, a company’s clawback policy must go beyond the minimum Dodd-Frank requirements and explicitly include all timevesting equity awards
- Clawback policies that meet only the minimum Dodd-Frank requirements will not be deemed robust, as those standards typically do not cover all time-vesting equity awards
|
| Realizable Pay Methodology |
- ISS will not display a realizable pay chart for companies that have undergone multiple (two or more) CEO transitions within the relevant three-year period
|
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This report was authored by Ken Foulks and Jackson Haw. To discuss this topic and any additional issues, please visit our website or call us at 212-886-1022.
