Pay Governance recently provided a rundown of the top issues compensation committees are discussing — and will continue to discuss — this year. The following topics are top-of-mind for compensation committees today — based on the 250+ meetings that Pay Governance partners or consultants have been involved with so far this year.
1. Enhanced Executive Security
2. Potential Impact of Tariffs on Incentive Plans
3. One Big Beautiful Bill Act – Proposed Impact on Executive Pay
4. Navigating Shifting Pressures on ESG and DEI Goals
5. Balancing Pay Decisions in Challenging Sectors
6. Incentive Plan Alternatives Amid Uncertainty
7. Heightened Scrutiny on Goal-Setting Practices
8. Alignment of Incentive Plan Payouts and TSR
9. Long-Term Incentive Vehicle Mix
10. Diverging Say-on-Pay Perspectives: Institutional Investors vs. Proxy Advisors
11. Shareholder Outreach Challenges
12. Talent Retention and Succession Planning
The report briefly discusses each topic — explaining why each of these is getting a lot of attention from boards and providing some statistics. For example, with respect to diverging say-on-pay perspectives, here’s what the alert provides:
SOP support from large institutional investors has remained consistently strong in recent years. However, recent data reveal a decline in alignment between institutional investors and proxy advisors on SOP voting outcomes. This suggests that institutional investors may be placing less reliance on proxy advisor guidance and increasingly forming independent judgments on executive compensation matters. It may also highlight an emerging shift in how executive pay practices are evaluated and signal a broader rebalancing of influence in shaping SOP results.
Last week, ISS launched its Annual Global Benchmark Policy Survey. The survey is open for comment until August 22 at 5 p.m. ET. As usual, this is a key step in ISS’s formulation of voting policies for 2026 AGMs. As Dave pointed out on TheCorporateCounsel.net, this year’s survey addresses non-executive director pay and numerous executive compensation topics, including time-vs. performance-based long-term incentives, ISS’s say-on-pay responsiveness policy and the modification or removal of ESG metrics for in-flight awards.
Non-executive director pay – In accordance with its Benchmark voting policy, ISS’s reports include cautionary language if high (outlier) non-employee director pay levels and/or other problematic director pay practices are identified at a company. It will generally make adverse recommendations for the committee members approving director pay after two consecutive years, absent disclosure of a reasonable rationale. ISS notes concern that waiting two consecutive years might result in missing single or non-consecutive years of problematic director pay practices and asks for input on whether any specific problematic director pay practices may warrant immediate adverse recommendations (even in year one).
Time- vs. performance-based equity – Recognizing that some investors have advocated for reducing the emphasis on performance-based equity awards while others continue to believe that performance-based equity programs can provide insight into performance expectations and meaningful incentives, ISS asks whether respondents’ organizations consider time-based equity acceptable for all or part of executive long-term incentive awards. It then asks some follow-up questions, including:
– What vesting and/or post-vesting retention periods the organization considers sufficiently long-term for a company to move to time-based equity for part or all of its long-term incentives. When I’ve spoken to compensation consultants about this, they’ve identified this time-period as a key factor in understanding whether any policy shift to further embrace time-based awards would be welcome to corporate boards, so I’ll highlight that the multiple-choice responses in the survey (to the extent they provide a period) range from 3 to 7 years.
– In a program with a mix of time- and performance-based awards, what the organization considers a reasonable mix. The multiple choice responses in the survey (to the extent they provide a percentage) range from 25% to 50%.
– To solicit more detailed input on preferences for the breakdown between the vesting period and a post-vest holding period and what constitutes meaningful stock retention requirements.
Say-on-pay responsiveness policy – This question recognizes that companies might have a harder time meeting ISS’s say-on-pay responsiveness policy following the SEC’s February 2025 Schedule 13D/G guidance and asks how ISS should view (1) disclosures that a company was unable to obtain shareholder feedback after attempting to engage plus (2) whether pay program changes at a company with a low say-on-pay vote can be viewed as responsive even if the company was unable to get feedback from shareholders.
Modification or removal of ESG metrics – ISS asks how it should assess the removal of ESG or DEI metrics from in-flight awards.
As Liz shared today on TheCorporateCounsel.net, Glass Lewis is out with its policy survey as well.
We’ve often discussed here the evolving role of the compensation committee and its ever-widening mandate — especially as it relates to human capital management. This HLS blog from Semler Brossy aims to provide “a roadmap, sample calendars, and tips” to build your “‘next-generation’ compensation committee that can help talent-forward organizations succeed.” For example, here are tips to get started if your compensation committee lacks prior HCM experience:
[W]e have found that a “crawl, walk, run” orientation helps quickly bring everyone up to speed.
Start with report-outs and establish your organization’s baseline of relevant topics (crawl).
From there, have HCM teams provide updates on the progress of HCM initiatives (walk).
Finally, consider bringing in business unit leaders to discuss how they are fostering a healthy culture and retaining talent (run).
The committee will then feel empowered to ask challenging, insightful questions about overall HCM strategies at all levels of the organization. Throughout, the hope is to align these discussions about HCM with discussions on broader compensation strategy.
It can seem overwhelming to add agenda topics to otherwise packed meetings. The blog shares some scheduling tips to make this lift more doable:
New responsibilities will add more time to board meetings, but there are natural times when HCM discussions can align with other agenda items. For companies with a calendar fiscal year, summer meetings are an easier time to review HCM issues stemming from company strategy.
Future committee meetings can then tackle the items identified as HCM priorities, with conversation topics and agendas flowing from these initial discussions. Another time-saving strategy is to pull standard approval and compliance items into a “bonus agenda.” Committees can present those materials with good context ahead of the meeting, ask for questions on the materials, and then get a combined approval.
The blog also gave this interesting example of a board in the “run” stage of HCM oversight:
On the more extreme end of the data-collection spectrum, some boards get feedback directly from management by inviting them into the boardroom. Delta Air Lines, for example, has an employee committee that “relays employee concerns, perspectives, and suggestions directly to our executives and Board of Directors.” While this is far from the norm, it illustrates a potential model for further board/management collaboration in the future.
Speaking of busy compensation committees, the executive compensation world is in a time of great change. Our October “Proxy Disclosure & 22nd Annual Executive Compensation Conferences” are your chance to hear from our great speakers to make sure you’re staying up to speed! Our conferences are Tuesday & Wednesday, October 21 & 22, at Virgin Hotels Las Vegas. And don’t miss out on our Welcome Party Celebrating CCRcorp’s 50th Anniversary from 4 to 7 pm PT on Monday, October 20. (Don’t worry! We have a virtual option if you are unable to attend in person!)
Equity award agreements often provide that the awardee will forfeit the awards if they breach various restrictive covenants — usually, non-solicitation, non-competition, and/or confidentiality. These forfeiture provisions can create some challenges for drafters. In May, Liz shared a recent case in which the Delaware Court of Chancery refused to enforce the covenants following the forfeiture of the units, as the agreement explicitly stated that the units were the sole consideration for those covenants.
The 10th Circuit also addressed these terms in an award agreement — and specifically found that the forfeiture provision can be enforceable even when the non-compete itself may not meet the applicable state law’s reasonableness standard. This Proskauer blog describes the facts:
A retirement agreement allowed the former CEO of Spirit AeroSystems (“Spirit”) to receive cash payments and continue vesting in certain stock awards if he continued working for Spirit as a consultant and complied with a non-compete agreement. The CEO subsequently contracted with a hedge fund that was pursuing a proxy contest against one of Spirit’s suppliers. Spirit determined that this activity breached the non-compete and therefore stopped payments to the CEO and cut off continued vesting of the stock, resulting in forfeiture of the CEO’s then-unvested stock awards.
As the blog notes, the court distinguished the forfeiture of future compensation from a traditional penalty for competition.
Under Kansas case law, the former is valid and enforceable only if “reasonable under the circumstances and not adverse to the public welfare.” But the court concluded that Kansas law does not subject the latter to the same reasonableness standard because it does not restrain competition in the same way. Rather than imposing a penalty, a forfeiture for competition provision “merely provides a monetary incentive in the form of future benefits for not competing.” The court reasoned that a forfeiture for competition provision gives the worker “a choice between competing and thereby forgoing the future benefits or not competing and receiving those benefits.” And because the forfeiture applied only to future compensation, it did not amount to a penalty: the executive forfeited only “the opportunity for the shares to vest notwithstanding his retirement.”
The agreement included both a forfeiture-for-competition provision and traditional enforcement rights (to pursue monetary damages and specific performance), but the court found that the two could be severed under the agreement’s terms. The court found that a “forfeiture-for-competition provision should be presumed enforceable” absent the presence of policy concerns — e.g., that imbalanced bargaining power may result in a one-sided non-compete and that overbroad non-competes can have more widespread harm. It found those didn’t apply here and pointed to the specific circumstances of the awardee — a sophisticated executive — and the negotiation — including his support of counsel.
Notably, this is a Federal court applying Kansas law — so the blog notes it’s limited as far as binding authority goes. And some clearly reject forfeiture for competition. But the blog says it provides “meaningful authority for the proposition that a forfeiture for competition provision can be enforced even if applicable law otherwise limits the enforceability of non-compete provisions,” and it provides this drafting tip.
If an agreement has more than one enforcement mechanism (e.g., a right to seek damages and injunctive relief and a separate statement that breach will result in forfeiture of certain compensation or benefits), it is important to make each enforcement mechanism distinct and severable from the others. The result of this case could have been different if the agreement did not have a severability clause.
It also helps to state clearly that amounts subject to forfeiture are not considered earned or fully vested (even if considered vested for tax purposes) unless and until the employee has satisfied all applicable conditions. Clarity on this point helps the court to distinguish between a permissible compensatory incentive to comply and a potentially impermissible penalty for breach.
I’m loving that Mark Borges has returned in force with his “Borges’ Proxy Disclosure Blog.” Members of this site can visit the blog – and can sign up to get that blog pushed out to them via email whenever there is a new entry. All you need to do is click the link on the left side of the blog and enter your email address. Here are a few of Mark’s recent updates:
Mark doesn’t simply flag the disclosure – although even that is helpful! He also adds context and commentary from his years of experience.
If you aren’t yet a member with access to the Borges’ Proxy Disclosure Blog and all of the other resources on this site – such as our checklists, resource libraries, and the essential Lynn & Borges’s “Executive Compensation Disclosure Treatise” – email info@ccrcorp.com, call 1.800.737.1271, or sign up online. There is no risk in trying a membership! During the first 100 days as an activated member, you may cancel for any reason and receive a full refund!
As Bruce Brumberg recently highlighted on myStockOptions.com, the “One Big Beautiful Bill” Act (OBBBA) introduced some tax changes that compensation committees and execs may want to consider when structuring pay programs with stock options and RSUs. One thing to consider is that due to the Bill’s phaseout of the increased SALT deduction, equity vesting dates could impact availability of the deduction. Bruce’s Forbes article on this topic points out that this may also create an “alternative minimum tax” issue for options:
Whenever you exercise incentive stock options (ISOs) and hold the stock, you need to consider whether this will trigger the AMT, as the exercise spread becomes part of your AMT income (AMTI). Dealing with the AMT will be more of a hassle for anyone with ISOs trying to obtain the preferential ISO tax treatment at sale. The denial of the SALT deduction under the AMT rules, where instead it’s added back to your income to increase your AMTI, will now play a bigger role. Given the quirky way in which AMT income is determined, taking SALT deductions up to the $40,000 cap could make it more likely that you will trigger the AMT with an ISO exercise/hold. (For details on the AMT calculation, see an FAQ at the website myStockOptions.com.)
The article also summarizes changes for pre-IPO companies that issue Qualified Small Business Stock (QSBS) after the date of the Bill:
For QSBS, the OBBBA increased the gross-asset test for companies eligible to issue QSBS to $75 million and raised the amount of the capital gain exclusion on your tax return to $15 million. It also added shorter stock-holding periods for the exclusion of capital gain income from taxes. Now there are three tiers:
– 100% exclusion for shares held five years
– 75% for shares held four years
– 50% for shares held three years
The article says that timing will be a big deal, since half of the law comes into effect for 2025, followed by the other half in 2026. That means “creative tax planning” will be in full force this year around stock option exercise strategies, charitable gifts, and deductions.
The biggest takeaway for me in all of this stuff is to remind executives and employees to consult their own tax advisors. Also, don’t forget the possibility of Section 16 issues for tax planning transactions! Alan Dye & Peter Romeo have created a lot of resources on Section16.net about how to report these types of transactions and avoid short-swing foot faults. And check out the memos we’ve posted on this site about the benefits and executive compensation implications of the OBBBA.
The clock is ticking to take advantage of our “Early Bird” rate – a 20% discount on the single in-person attendee fee – for our “Proxy Disclosure & 22nd Annual Executive Compensation Conferences.” That rate expires at the end of the day this Friday – July 25th! You can sign up online or reach out to our team to register by emailing info@ccrcorp.com or calling 1.800.737.1271.
This year, the Conferences are on Tuesday & Wednesday, October 21 & 22, at The Virgin Hotels in Las Vegas. Check out our agenda – 15 sessions over 2 days to equip you with on-point action items for year-end and proxy season. Plus, our format & terrific group of speakers keep things moving & keep it fun. You won’t be checking your watch every 3 minutes or using all your willpower just to stay awake.
We also have even more opportunities to network this year. If you plan to attend in person, be sure to arrive early enough on Monday to attend the Welcome Party + CCRcorp’s 50th Anniversary Celebration, which will take place from 4:00 pm to 7:00 pm PT on October 20th. We can’t wait to celebrate!
We hope to see you there in person, but as always, we have a virtual option for those of you who are unable to travel to Las Vegas for the event. You can sign up online or reach out to our team to register by emailing info@ccrcorp.com or calling 1.800.737.1271.
A few of our members have informed us that the Glass Lewis window for peer group submissions is open – through August 8th – for companies with annual meetings between October 2025 and February 2026. Glass Lewis shares the info by email to the designated company contact, rather than making a public announcement like ISS.
As this Compensia memo explains – and as I blogged last year – not every company needs to submit something during this window. You really only do it if your peer group has changed since your last proxy statement and you want to make sure the proxy advisor considers that.
See Meredith’s blogs from a few weeks ago about why peer groups might change from year to year – and potential changes to Glass Lewis’s methodology. A lot of people are happy that the new methodology will move away from letter grades!
In the latest 26-minute episode of “The Pay & Proxy Podcast,” WTW’s Heather Marshall and Steve Seelig joined me to discuss the SEC’s Roundtable on Executive Compensation Disclosure Requirements. They shared:
– An overview of the roundtable and topics covered
– Recurring themes raised by the panelists
– Surprises about what was addressed – or was not addressed – during the panels
– Specific suggestions for changes to the executive compensation disclosure requirements shared during the panels
– Favorite quotes or comments from the panels
As always, if you have a compensation-related topic you’d like to discuss on a podcast, feel free to ping me at mervine@ccrcorp.com! And if you aren’t already a member of CompensationStandards.com, email info@ccrcorp.com to sign up and access this podcast and all of our archives!
We’ve posted the transcript for our recent CompensationStandards.com webcast, “Proxy Season Post-Mortem: The Latest Compensation Disclosures,” during which Mark Borges, Principal, Compensia and Editor, CompensationStandards.com, Dave Lynn, Partner, Goodwin Procter LLP and Senior Editor, TheCorporateCounsel.net and CompensationStandards.com, and Ron Mueller, Partner, Gibson Dunn & Crutcher, discussed the “lessons learned” from the 2025 proxy season that companies can start carrying forward into next proxy season. The webcast covered the following topics:
– 2025 Shareholder Engagement Challenges– 2025 Proxy Statements – DEI and Other E&S Developments– 2025 Proxy Statements – Executive Compensation Disclosures– Shareholder Proposals– Thoughts on the (then-upcoming) SEC Roundtable
Members of this site can access the transcript of this program. If you are not a member, email info@ccrcorp.com to sign up today and get access to the full transcript – or sign up online.