ICYMI, here’s something John shared on TheCorporateCounsel.net earlier this week:
Yesterday, the Division of Corporation Finance issued a statement indicating that, except for no-action letters seeking to exclude shareholder proposals under Rule 14a-8(i)(1), it’s out of the Rule 14a-8 no-action letter business for the remainder of 2025 and 2026. This excerpt summarizes Corp Fin’s action and reminds issuers of their continuing notice obligations:
The Division of Corporation Finance has thoroughly considered its role in the Rule 14a-8 process for the 2025-2026 proxy season. Due to current resource and timing considerations following the lengthy government shutdown and the large volume of registration statements and other filings requiring prompt staff attention, as well as the extensive body of guidance from the Commission and the staff available to both companies and proponents, the Division has determined to not respond to no-action requests for, and express no views on, companies’ intended reliance on any basis for exclusion of shareholder proposals under Rule 14a-8, other than no-action requests to exclude a proposal under Rule 14a-8(i)(1).
Pursuant to Rule 14a-8(j), companies that intend to exclude shareholder proposals from their proxy materials must still notify the Commission and proponents no later than 80 calendar days before filing a definitive proxy statement. We remind companies and proponents, however, that this requirement is informational only, there is no requirement that companies seek the staff’s views regarding their intended exclusion of a proposal, and no response from the staff is required.
In light of recent developments regarding the application of state law and Rule 14a-8(i)(1) to precatory proposals, the Division has determined that there is not a sufficient body of applicable guidance for companies and proponents to rely on. As such, the Division will continue to review and express its views on no-action requests related to Rule 14a-8(i)(1) until such time as it determines there is sufficient guidance available to assist companies and proponents in their decision-making process.
Corp Fin’s willingness to have the Staff continue to referee disputes over whether precatory proposals are excludable should be read in the context of Chairman Atkins’ remarks last month indicating the Staff’s readiness to entertain arguments that such proposals are excludable under Rule 14a-8(i)(1) as not being proper subjects for shareholder action under state law.
Corp Fin’s statement applies to the current proxy season (October 1, 2025 – September 30, 2026) as well as no-action requests received before October 1, 2025 that haven’t yet been responded to by the Staff.
Although no-action letters are mostly off the table for now, the statement provides that if a company wants to receive a response from the Staff about its exclusion of a proposal, it may include, as part of the required notification, “an unqualified representation that the company has a reasonable basis to exclude the proposal based on the provisions of Rule 14a-8, prior published guidance, and/or judicial decisions.” Companies that follow this procedure will receive a response from Corp Fin to the effect that based solely on that representation, the Division won’t object if the company omits the proposal from its proxy materials.
Commissioner Crenshaw issued her own statement on Corp Fin’s action, and it probably won’t surprise you to find that she’s doesn’t find much to like in it:
Today’s Announcement is a Trojan horse. It cloaks itself in neutrality by expressing that the Division will not weigh in on any company’s exclusion of shareholder proposals, but then it hands companies a hall pass to do whatever they want. It effectively creates unqualified permission for companies to silence investor voices (with “no objection” from the Commission). This is the latest in a parade of actions by this Commission that will ring the death knell for corporate governance and shareholder democracy, deny voice to the equity owners of corporations, and elevate management to untouchable status. In a neutral way, of course.
I’ve got to admit that I’m still processing this blockbuster, and at this point the first response that comes to mind is “Holy Smokes!” This is a huge change, and it’s likely to have some pretty profound implications for the shareholder proposal process. John’s speculated about some of what those implications might be in the next blog.
Compensation professionals, including CHROs and Total Rewards executives, may be involved in the shareholder proposal process from time to time, since they often address topics related to ESG, human capital management, including pay equity, DEI, workforce benefits and labor management, as well as executive compensation. While this change is certainly going to shake things up, shareholder proposals are not going away overnight. To that end, check out the recent “Shareholder Proposal Guide: A Playbook for CHROs and Total Rewards” from the CHRO Association.
Gallagher’s Executive Compensation Consulting recently released its latest annual report (available for download), analyzing executive pay trends across most of the Russell 3000 companies in 2024. Here’s the finding that most stood out to me:
Smaller companies, particularly those earning less than $50 million in revenue, saw a staggering 44.7% increase in median CEO compensation after two years of decline. This surge was driven by aggressive long-term incentive (LTI) grants.
I typically think of LTI being a smaller component of pay at smaller companies, but with this increase, “LTIs at smaller companies doubled in value compared to their slightly larger peers, making up 82.4% of total CEO compensation — the highest percentage of any revenue group.” Wow.
Why this surge? Smaller companies compete aggressively for leadership talent, often recruiting from larger firms. Smaller firms also tend to deliver higher growth, take higher risk and draw less scrutiny from institutional investors . . . Emerging sectors like technology and life sciences commonly employ LTI-heavy compensation to attract talent while conserving cash. LTI levels at these smaller firms rival those at much larger companies.
With equity awards representing such a significant portion of pay — and the possibility that large awards might be the subject of a legal challenge — it’s more important than ever to perfect your process. Tune in at 2 pm ET on Wednesday, December 3rd, for our webcast “Equity Award Approvals: From Governance to Disclosure” for a deep dive on award approvals. Our panelists — Troutman Pepper Locke’s Sheri Adler and David Kaplan and Pay Governance’s Jeff Joyce will address common foot faults and share best practices to help you dot your i’s and cross your t’s when awarding equity in 2026 and beyond. Head to the linked webcast landing page to add the program to your calendar.
The requirement to disclose executive security spend in the Summary Compensation Table’s calculation of “Total Compensation” has been a significant area of comment in letters submitted to the SEC on executive compensation disclosure requirements. In addition to addressing security spend, the letters have also commented on the two-part test and the disclosure thresholds.
Here’s more from the September-October issue of The Corporate Executive newsletter, which includes a deeper dive into the topics covered at the SEC’s Executive Compensation Roundtable, as well as the many issues that commenters have been raising for the SEC’s consideration in its retrospective review of executive compensation disclosure requirements.
Many comment letters ask the SEC to revisit the nuanced, two-part test since it is difficult to apply in practice. Cooley advocates for a “primary purpose” test — that is, whether the primary purpose of a benefit is to further a company’s legitimate business objectives, not whether it is necessary for the executive’s job.
As part of the Commission reconsideration of the definition of perquisites, the current interpretive standard should be revised in a manner to exclude arrangements provided primarily for legitimate business objectives. There should be a presumption, but not a requirement, that defers to the determination of a company’s board of directors or committee of independent directors. For example, rules or interpretive guidance could provide that an arrangement or item is not a perquisite if a company’s board of directors or a committee of independent directors have approved or ratified the benefit as being primarily to fulfill a business purpose, or have approved or ratified a business purpose policy under which the benefit is provided. Any standard for determining whether an item or arrangement is a perquisite should be applied on a facts-and circumstances basis instead of per se determinations that items are perquisites.
Commentators also advocate increasing the perquisite disclosure thresholds.
The National Association of Manufacturers and the NYSE Institute suggest that there be a $100,000 aggregated threshold for perquisite reporting, to be indexed to inflation going forward, while the Society for Corporate Governance offered a $50,000 threshold. The NYSE Institute and many other letters also cite the heightened threat environment and argue that amounts spent on executive security have become critical business expenses and should not be considered a reportable perquisite.
Cooley and Baker McKenzie also argue that work locations have become decentralized, such that travel between an executive’s approved work location and the company’s headquarters should not be deemed a commute, and when a company covers the cost of an executive’s travel between these locations, those amounts should not be considered perquisites.
The Corporate Executive newsletter often addresses compensation-related topics. If you are not already receiving the important updates we provide in The Corporate Executive newsletter, please email info@ccrcorp.com or call 1.800.737.1271 to subscribe to this essential resource.
Here’s something Dave shared last week on TheCorporateCounsel.net:
Yesterday, the WSJ reported that the proxy advisory firms Institutional Shareholder Services and Glass Lewis are being investigated by the FTC for potential violations of antitrust laws. The article notes:
The probe, which is in its early stages, is focused on the firms’ competitive practices and how they steer clients on hot-button issues such as climate- and social-related shareholder proposals, people familiar with the matter said. The FTC told Glass Lewis it was investigating whether it and others may have engaged in “unfair methods of competition,” according to a letter sent in late September that was reviewed by The Wall Street Journal.
The FTC probe follows an antitrust review launched by the Republican-led House Judiciary Committee this spring.
“This non-public investigation does not mean the Commission is suggesting Glass Lewis has acted unlawfully. With complete confidence in our longstanding commitment to high ethical standards, Glass Lewis is fully cooperating with the FTC’s document request,” a Glass Lewis spokeswoman said in a statement.
An ISS spokesman declined to comment.
Earlier this week, the WSJ reported that the White House is considering an executive order that would seek to restrict certain activities of ISS, Glass Lewis and the largest institutional investors. That article notes:
Trump administration officials are discussing at least one executive order that would restrict proxy-advisory firms such as Institutional Shareholder Services and Glass Lewis, people familiar with the matter said. That could include a broad ban on shareholder recommendations or an order blocking recommendations on companies that have engaged proxy advisers for consulting work, the people said.
Officials also are exploring limits on how index-fund managers are allowed to vote, seeking to curtail the power of such behemoths as BlackRock, Vanguard Group and State Street, the people said. These three together own on behalf of clients roughly 30% or more of many of the biggest U.S. publicly traded companies. One measure being discussed would require these index-fund managers to mirror their votes in line with clients who choose to vote.
We will be monitoring to see where all of this goes, because these measures could radically change the landscape for public companies.
For more, University of Colorado Law Prof Ann Lipton shared some thoughts on how an executive order could restrict the proxy advisors in a blog on Friday.
It’s still early days for Dodd-Frank clawback policies – but this Woodruff Sawyer blog says that so far, very few companies have experienced restatements that trigger a recovery. Here’s more detail:
Recovery Analyses Are Happening, but Clawbacks Are Not
Under the SEC’s final rule, both “Big R” (material) and “little r” (immaterial) restatements can trigger the need for a recovery analysis. That makes the bar for triggering a review quite low.
Based on analysis by Deep Quarry, through the first six months of 2025, there have been 50 companies that have included recovery analysis disclosures in their filings. Through the same period, only six companies disclosed the clawback of executive compensation following an accounting restatement. While it’s more than the two companies that disclosed clawbacks in the first half of 2024, the delta thus far is underwhelming.
Without news of big recoveries, it’s not too surprising that the insurance market also hasn’t taken off. Remember that executives would need to pay for insurance out of their own pocket since the rule prohibits companies from reimbursing them. The blog suggests that if executives do get more anxious about clawbacks, there may be unintended consequences for shareholders:
The SEC was right that people would be interested in this type of coverage, but we have not seen a robust market response.
Some carriers stepped forward with coverage options designed to respond to clawback demands. However, the limits were low, the premiums were high, and the coverage had to be paid for by individuals, not the company.
If the rule starts to have real consequences, the insurance market may eventually respond. But if that happens, one wonders: If executives can simply insure against the risk, what accountability does the rule actually enforce?
Further, consider this: the greater risk executives face of losing their incentive compensation, the greater the amount of incentive compensation a company needs to award to attract and retain talent (e.g., an uncertain dollar is worth less than a certain dollar).
In terms of seeing a big impact here, are we waiting for Godot? That may be the case if we’re talking about a groundswell of clawbacks – time will tell. Unfortunately, if a restatement happens at your company, the only outcome that will matter to you at that point will be your own. On a positive note, there are now a few precedents to work from, and these statistics may give some comfort to practitioners who have to deal with the complexities of the clawback process if it’s triggered. For sample clawback disclosure – and helpful commentary – see this Proxy Disclosure Blog from Mark Borges.
If governance practices were one-size-fits-all, our jobs would be boring and corporate decision-making would be a mess. But since we all still want to know what everyone else is doing, this memo from Compensation Advisory Partners canvasses practices in setting CEO and non-employee director compensation among the 110 largest companies in the S&P 500. Maybe you’ll see some good practices to adapt to your own clients and companies.
Here are four takeaways:
– 26% require the full board to approve CEO compensation, typically upon recommendation from the compensation committee, and 72% give final approval authority to the compensation committee itself, with the board informed through committee reporting and disclosure.
– A small fraction of companies (2% of CAP’s sample) utilizes a hybrid approach, where the full board, guided by the compensation committee’s recommendation, approves the CEO’s salary, while the compensation committee approves all other elements of pay.
– For non-employee director pay, companies are split between assigning this role to the compensation committee (57% of CAP’s sample) and assigning it to the nominating/governance committee (41%), though in both models, the full board almost always retains final approval (97% of CAP’s sample).
– One company in CAP’s sample (1%) has a combined compensation and nominating/governance committee that oversees director pay.
The memo delves into the pros & cons of various approaches to compensation oversight. It recommends that boards and compensation committees periodically revisit their structure and approach – and clearly communicate both the process and rationale for their practices.
You can find more resources about compensation committee roles in our “Compensation Committee Charters” Practice Area. If you aren’t already a member of this site, email info@ccrcorp.com to get access.
As you may have read, Tesla shareholders approved an up-to-$1 trillion performance award for Elon Musk at the company’s annual meeting last week. The company’s proxy statement describes the award – and the voting results are detailed in this Form 8-K that the company filed on Friday.
This newsletter from Andrew Droste parses the percentage support – and also shows how the voting outcomes would have changed if insider holdings were excluded from the calculation. Here’s an excerpt, which shows that the pay-related proposals would have passed either way:
– Proposal 2: Say-on-Pay – 78.2% actual result, with insiders / 69.2% hypothetical result, without insiders
– Proposal 3: A&R 2019 Equity Incentive Plan – 78.7% actual result, with insiders / 69.8% hypothetical result, without insiders
– Proposal 4: 2025 CEO Performance Award – 76.7% actual result, with insiders / 66.9% hypothetical result, without insiders
Tesla put on a full-court press for this meeting – you can see the numerous “additional soliciting material” submissions on the company’s Edgar page, which are a master class in using social media to bring in the vote. Here’s one of my favorites. This Business Insider article recaps:
Starting from September, Tesla ran ads across Facebook, Instagram, X, and Google that told shareholders they “must retain and incentivize Elon” and that “transformative growth” starts with “aligning CEO pay with shareholder value.”
The board also aired an ad on Paramount+ urging shareholders to vote in alignment with the board’s recommendations, concluding with “the future of Tesla is in your hands.”
Those efforts paid off, overcoming negative recommendations and voting decisions by ISS, Glass Lewis, Norges, CalPERS, and other pension funds. In addition to the magnitude of the award, the Business Insider article notes that there were concerns that it incentivizes outsized risks in building autonomous vehicles. But as this WSJ article shows, other funds voted in favor.
Liz shared on TheCorporateCounsel.net earlier this week that, in late October, Glass Lewis announced the results from its annual policy survey. As she noted, you might be wondering, “does this still matter, since Glass Lewis is moving away from its house policy?” She says the answer is “yes,” for a few reasons:
1. That move isn’t happening until 2027.
2. Even after the “house policy” disappears, Glass Lewis is still going to provide research and perspectives to clients – it’s just that everything will be more customized, which is already happening at a certain level. Glass Lewis says results from the policy survey inform its case-by-case analysis of company circumstances in the research and filters that it provides to its global client base.
3. The policy gives insight into investors’ current views on several hot topics.
Here are a few takeaways on those hot topics related to compensation:
Make Whole Awards: Over the past year, use of the make-whole designation for U.S. sign-on awards has risen. Over half of all S&P 500 sign-on awards were identified as make-whole compensation this year, compared to 38% in 2024.
Non-investors were far more likely to view make whole awards as fundamentally different from other sign-on awards (40.8%, compared to just 5.3% among investors). Investors were split; while the top answer was to treat make whole grants on the same basis as other sign on awards (50%, compared to 27.6% among non-investors)), nearly as many were willing to view them differently so long as the grants are fully disclosed and clearly equivalent to what was forfeited (44.7%, compared to 31.6% among non-investors).
Time-Based Awards: U.S-based investors were far more open to the sole use of time-based awards as a part of the ongoing compensation structure so long as the practice was common with peers (43.5%, compared to 9.5% among investors from other regions) or as a retention measure (17.4% vs 9.5%). Meanwhile, investors from other regions appeared more likely to view them as a temporary stopgap, such was when the company is newly public (33.3%, compared to 13% among U.S. investors) or following a significant change in business strategy (38.1% vs 8.7%).
CEO Pay Ratio. To prepare for the possibility of reduced disclosures from the SEC regarding executive compensation, we asked for feedback on what elements of reporting are considered important to communicating and assessing U.S. executive compensation programs.
While most investor views were roughly aligned, there was a geographic split on the pay ratio, with 44% of U.S. respondents viewing it as not important, compared to just 8% among investors from other regions.
ISS Sustainability Solutions, the sustainable investment arm of ISS STOXX, announced updates to its Governance QualityScore for institutional investors last week. The updates introduce several new factors and extend existing factors to new markets. In addition to new factors that assess oversight of AI, four new questions for the U.S. market also address vesting periods for variable pay plans. Based on the detailed new Methodology Highlights (available for download), the new questions are:
What is the CEO vesting period for time-based options and/or stock appreciation rights? (Q475)
What is the CEO vesting period for time-based restricted stock? (Q476)
What is the CEO vesting period for performance-based options and/or stock appreciation rights? (Q477)
What is the CEO vesting period for performance-based restricted stock? (Q478)
At the same time, ISS announced a data verification period from November 10 to 21 during which companies can verify and submit changes to their data on all factors, new and old, before scores are made available under the updated methodology.
Yesterday, ISS announced that for companies with annual meetings between February 1, 2026 and September 15, 2026, its peer group review & submission window will open at 9:00 AM ET on Monday, November 10, and will close at 8:00 PM ET on Friday, November 21. Submissions should reflect peer companies used (or to be used) by the submitting company for pay-setting for the fiscal year ending prior to the company’s next upcoming annual meeting (so for your 2026 annual meeting, this would mean peers used for the 2025 fiscal year).
Here’s a reminder from the press release:
As part of ISS’ peer group construction process, on a semi-annual basis, corporations are requested to submit changes they have made to their self-selected peer groups for their next proxy disclosure. ISS considers companies’ self-selected peer groups as an important input as part of its own peer group construction methodology . . .
Companies that have made no changes to their previous proxy-disclosed executive compensation benchmarking peers, or companies that do not wish to provide this information in advance, are under no obligation to participate. For companies that do not submit any information, the proxy-disclosed peers from the company’s last proxy filing will automatically be factored into ISS’ peer group construction process.
Additional information on the ISS peer submission process, including links to ISS’ current recent peer selection methodology for the U.S., Canada, and Europe is available on the ISS website here.
We also shared some background info on constructing peer groups over the summer.