Last week, Glass Lewis sent a client communication previewing changes to its quantitative pay-for-performance model that will be effective for the 2026 proxy season. This Cooley alert summarizes what we know so far:
The announcement signals significant revisions to the structure and scope of the Glass Lewis P4P assessments for US and Canadian companies. Most notably, Glass Lewis will replace its historical A – F letter grade system for US and Canadian companies with a new 0 – 100 numerical scorecard system, with an associated concern level. In addition, its evaluation period for key P4P tests will be lengthened from three to five years. The announcement also hinted at the introduction of new P4P assessment tools that will cover additional facets of compensation.
A brief video accompanying the announcement includes a chart illustrating the relationship between short-term incentive payouts and a company’s total shareholder return ranking over a five-year period, suggesting a potential shift toward more targeted evaluations of the link between short-term incentive outcomes and long-term value creation. However, the announcement and video otherwise provide essentially no other information about the new methodology.
The alert notes that this preview comes months before annual policy updates are typically published — which may reflect the scope of the changes. Importantly, Cooley notes that no immediate action is needed — or even possible — until further guidance, which we should see in the coming weeks.
This will undoubtedly be a big topic of conversation at our “2025 Proxy Disclosure and 22nd Annual Executive Compensation Conferences.” We’re very thankful for the continued participation of the proxy advisors at our conferences in the always popular panel “Navigating ISS & Glass Lewis,” which features a conversation moderated by Davis Polk’s Ning Chiu with representatives from both firms.
This year, our conferences are taking place on October 21 & 22 at Virgin Hotels Las Vegas with a virtual option if you are unable to attend in person. If you do plan to attend in person, be sure to arrive early enough on Monday to attend the Welcome Party Celebrating CCRcorp’s 50th Anniversary, which will take place from 4:00 pm to 7:00 pm PT on October 20.
Register today so you don’t miss out on our Early Bird Rate — it expires July 25! Email info@ccrcorp.com or call 1.800.737.1271.
In the meantime, have a safe, happy, healthy Fourth! Our blogs will be back on Monday.
Yesterday, I shared that the ISS peer group submission window for off-season meetings is opening next week. For folks not involved in this process — and often the lawyers are not — I thought I would share this Pearl Meyer blog about how these groups are constructed and why they might change year-over-year.
First, the blog says to start with basic screens using this criteria to guide initial selection.
Primary Criteria:
– Industry Alignment: Start by selecting companies within your industry or closely related sectors. Comparable market conditions and business dynamics ensure relevant comparisons.
– Company Size: Appropriate relative size is critical, but the types of measures used for comparison can vary by industry. The most common focus is revenue, but other metrics such as assets, market capitalization, enterprise value, and employee count may be just as important (and in some cases more so). Once the key metric(s) are established, an appropriate size range should be set, typically 0.5x to 3.0x depending on the metric. Striking this balance ensures meaningful comparisons without skewing results.
Secondary Criteria:
– Geographic Scope: While geography matters less for executive roles than lower-level positions, local market comparisons may still be a relevant consideration.
– Competition for Talent: Include companies that directly compete for your executive talent. In some cases, this may include companies that do not compete in the same industry.
– Business Complexity and Stage: Consider the complexity of operations and the company’s life-cycle stage—whether they’re startups, mature entities, or undergoing rapid growth or restructuring.
– Performance Stability: It’s important to look at the financial stability and performance. Otherwise, reliable benchmarks can be distorted by underperforming organizations.
– Peers of Peers: Most public companies disclose their peer groups, and reviewing them can provide valuable insights into industry practices. Looking at disclosures of direct competitors can uncover commonly referenced peers and identify companies that list your own as a peer.
But the process shouldn’t end with analytical screens. It says “personal insight and experience” needs to be the next layer to ensure that all business or talent competitors are considered for the peer group, even where they may not pass these analytical screens. Size-wise, it says to generally aim for 12 to 20 companies.
Why would a company’s peer group change in future years? The blog emphasizes that this is an ongoing process, and the group will require regular review and discussion, with changes being necessary from time to time due to M&A and shifts in the company’s market position.
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 . . . 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 . . .
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. and Canada is available on the ISS website here.
Last Thursday, the SEC held its roundtable on executive compensation disclosure requirements. Our own Dave Lynn (who spoke on a panel) noted on TheCorporateCounsel.net blog on Friday that the event was well-attended. If you missed it — either in person or virtually — the SEC posted a replay of each panel on the SEC’s YouTube channel. And if listening to 4+ hours of discussion about the SEC’s executive compensation disclosure requirements is just not in the cards for you right now (or ever), we’ve got you covered!
In blogs on TheCorporateCounsel.net on Friday, Dave shared his thoughts and excerpts from the remarks by Chairman Atkins and Commissioners Crenshaw, Peirce and Uyeda. On the Proxy Disclosure Blog, Mark Borges (who also spoke on a panel) shared a few thoughts about revisiting the current disclosure requirements that occurred to him as he listened to the various panelists. Today, I thought I’d share high-level topics, ideas and themes that I heard throughout the three panels, many of which were teed up in advance by Chairman Atkins, and whether there was consensus or some disagreement among the panelists. Here are a few:
– How or whether executive compensation disclosure requirements drive or distort compensation decision making
Panelists cited the requirement to hold a say-on-pay vote and compensation committees taking into account investor and proxy advisor policies
Panelists also noted that including executive security spend in the Summary Compensation Table’s calculation of “Total Compensation” can distort investor and proxy advisor perception and analysis of pay (although corporate representatives stressed that the board will make decisions in the best interest of the company regardless)
– Whether the executive compensation disclosure requirements effectively convey how the board and compensation committee consider compensation
A number of panelists supported the suggestion that the disclosure requirements more closely reflect the presentation of pay in board materials — including the “target” and “outcome” tables that compensation committees use
– Whether “more is better”
Investor representatives generally made suggestions for additional disclosures, and issuer or advisor representatives generally suggested that the rules could be shortened and streamlined
Repeated “asks” by investor representatives included that quantitative disclosures be machine-readable and that the disclosures more clearly present the life-cycle of an equity award
– Whether the executive compensation disclosure rules are too granular and attempt to elicit disclosure of ALL the information ANY investor might want to know, instead of focusing on materiality and the reasonable investor standard
If you’re wondering about the title of this blog, CII’s Bob McCormick shared a story about his high school job making ice cream. He once asked the owner why they make some unusual flavors that weren’t very popular. The owner explained that one customer — who drove 30 minutes each way — really liked them. From there on out, “rum raisin ice cream” was a favorite call back, but panelists disagreed whether the rules should require companies to keep making rum raisin ice cream — i.e., keep disclosing information that is very valuable only to a small subset of investors. Now you know!
– Whether simplifying the Item 402 disclosure requirements would actually result in shorter disclosures
As Dave noted, while say-on-pay required very little disclosure, companies significantly expanded their voluntary disclosures after these votes were legislatively mandated
– The complexity and homogenization of pay and the factors driving these developments
There was generally consensus that companies feeling like they have to follow a “one-size-fits-all” approach to pay programs — with most pay in the form of PSUs — is a bad thing for both companies and shareholders, and that flexibility — including to simplify equity programs to largely time-vested with a long holding period — would be beneficial
– Consensus that the prescriptive, tabular requirements generally provide overly complicated and difficult to use disclosures, while some voluntary disclosures are particularly useful (including presentations of realized and realizable pay)
A few investor representatives described the complicated process they follow to understand executive equity awards, which involves flipping between numerous tables and referencing Form 4s
– Consensus among the issuer and advisor representatives that compensation disclosures are too costly to prepare
Corporate representatives stressed that “every dollar matters” for companies both large and small, while also noting the outsized burden on less-resourced small- and mid-cap companies
Our 2025 Conferences will be taking place Tuesday & Wednesday, October 21 & 22, at the Virgin Hotels in Las Vegas, with a virtual option for those who can’t attend in person. The early bird rate is ending soon! You can sign up by emailing info@ccrcorp.com or calling 800-737-1271.
Despite a sharp decline in shareholder proposals, the number of proposals on executive compensation topics dropped by only a handful this year. That’s according to recent stats from The Conference Board and ESGAUGE, which look at stats from Russell 3000 companies.
In further contrast to environmental & social, as well as governance proposals, these stats show that average support for executive compensation topics increased by 3% this year. It’s the only category besides “other” where average support increased. Here’s more detail (data is through June 13th):
Number of shareholder proposals voted in the Russell 3000: 443 (vs. 576 in 2024)
Governance: 165 (155)
Environmental: 60 (76)
Social: 102 (172)
HCM proposals: 38 (84)
Executive compensation: 51 (56)
Other (e.g., elect dissident’s director): 27 (33)
Average support: 23% of votes cast (vs. 22% in 2024)
Governance: 39% (39%)
Environmental: 10% (18%)
Social: 13% (16%)
HCM proposals: 9% (16%)
Executive compensation: 17% (14%)
Other: 38% (19%)
Number of shareholder proposals omitted/withdrawn: 313 (vs. 330 in 2024)
Omitted: 180 (136)
Withdrawn: 133 (194)
When you look closer, the story isn’t super clear-cut. We’ve been discussing factors that have been contributing to the overall drop in proposals over on The Proxy Season Blog – and many of those same factors are at play in the compensation category. One of those is the opposing forces of “traditional” proposals versus “anti-ESG.” For example:
– Meredith shared a few weeks ago that support for severance agreement-related proposals has been down this year (through May 1st).
– At the same time, anti-DEI proponents have submitted proposals relating to incentive compensation milestones – so those may account for some of the numbers this year.
Another variety of executive compensation related proposal that I’ve seen recently was a request to include CEO pay ratio in the company’s consideration of executive compensation, which to my knowledge hasn’t passed. Reach out if you know of any other proposals that we should watch for!
I don’t know about you, but I’m on the edge of my seat for tomorrow’s roundtable at the SEC, especially because so many of the participants are friends of our sites and also speaking at our upcoming “Proxy Disclosure & Executive Compensation Conferences.” (I’m always proud that we have so many members in our community who are giants in the field!)
1. Center on Executive Compensation – Reflecting the input of H.R. and exec comp professionals in response to questions posed in SEC Chair Paul Atkins’ May 16th statement about the roundtable – in particular, explaining the benefits to companies and investors of a more streamlined and principles-based disclosure model.
2. Farient Advisors – Supporting certain aspects of the current rules, including the concept and current definition of “Compensation Actually Paid,” but suggesting elimination of aspects of PvP, elimination of pay ratio, furnishing (rather than filing) the CD&A, and other changes intended to simplify presentations.
3. Cravath – Suggesting an alternative approach to equity award reporting that could simplify tabular disclosures, elimination of the requirement to disclose hypothetical termination scenarios for NEOs that have departed prior to filing Item 402(j) information, streamlining disclosure requirements for IPO and spin-off companies, revisions to Instruction 4 to Item 402(b) to require disclosure of performance metrics only at the time an award is earned, and revising the definition of “Compensation Actually Paid” and other aspects of PvP disclosures.
I know that a number of trade organizations, law firms, and consulting firms also have letters in process, so we’ll continue to see submissions after the roundtable. I have heard through the grapevine that comments will be most impactful if they’re submitted by late July / early August.
Did you know that CCRcorp is turning 50?! That’s right, we’ve been providing essential guidance on disclosures, governance, and executive compensation for half a century – beginning as a “must have” print newsletter and growing into the reliable online resources and events that everyone loves today.
We’re celebrating this milestone on Monday, October 20th in Vegas – and everyone’s invited! The anniversary party will be part of our welcome reception for our “Proxy Disclosure & Executive Compensation Conferences” at The Virgin Hotels, which are October 21st – 22nd. The Conferences will cover what you need to do in light of all the changes that are happening with the SEC, the broader regulatory and business environment, and the investor stewardship landscape. Here’s the agenda – 14 essential sessions over 2 days – and the speaker lineup.
The welcome reception and anniversary party is a casual drop-in event that runs from 4-7 p.m. on October 20th and is open to all attendees of the Proxy Disclosure & Executive Compensation Conferences – there’s no need to RSVP. But if you haven’t made your travel arrangements for the conferences, now’s the time, because the hotel block is going fast! Make sure to factor in the Monday evening reception when you book your tickets! We can’t wait to celebrate.
Of course, now’s also the time to register to attend the Conferences, if you haven’t done that yet. Our “early bird” registration deal is still available for in-person registrations! Our Conferences will be held Tuesday & Wednesday, October 21-22, at Virgin Hotels Las Vegas, with a virtual option for those who can’t attend in person. Reach out to our team to register by emailing info@ccrcorp.com or calling 1.800.737.1271.
This 14-page Glass Lewis report (available for download) says that “perks” are back in the spotlight with investors. Here’s why:
Perquisites, while usually a small component of executive pay packages, are currently soaring — and becoming a point of focus among shareholders and the public. Perquisites are often provided to support the executives in performing their duties, but the exclusivity it offers can also serve as a status symbol. They become problematic when they become excessive, underscoring broader concerns with executive compensation practices.
Ultimately, while perquisites will remain a constant feature of executive pay packages, a recent spike in perquisite costs is testing shareholder tolerance. In this post, we look at what is driving that spike, with a focus on aircraft, housing and security, and at how companies are reporting the costs.
According to the report, when investors deem perks to be excessive, they may also view them as a “canary in the coal mine” for poor governance or other problematic pay practices – which can lead to low support for say-on-pay and/or compensation committee members. Aircraft usage remains a sticking point, so Glass Lewis recommends disclosing a compelling rationale if these travel expenses greatly exceed industry norms or the company’s past practices. For example, investors may be more understanding if the company is requiring use of corporate aircraft following a third-party security study that identified credible threats. Speaking of security costs, the report gives this stat:
Among S&P 500 companies, the median total security reported for CEO in 2023 increased by approximately 114% and 98% compared to fiscal years 2019 and 2020, respectively. Prior to the pandemic, only 67 S&P 500 companies covered security costs for executives. This rose to 98 companies in 2023.
Glass Lewis predicts security-related expenses will be even higher when we see 2024 data. Investors may apply more scrutiny if enhanced security spending is triggered by other perks like “super commuting” that create security gaps. The report concludes with these suggestions:
Increased discussion and disclosure regarding rationale for out-of-the norm perquisites should be regarded as best practice and a standard in proxy statements going forward. Increased engagement on such topics is also efficient in curtailing excessive benefits. Going forward, we expect increased disclosure and increased adoption of limitations on total perquisite benefits, particularly as they relate to personal use of aircraft.
We’ve posted the transcript for our recent webcast “Top Compensation Consultants Speak” with Blair Jones of Semler Brossy, Ira Kay of Pay Governance and Jan Koors of Pearl Meyer. They discussed:
– DEI Programs, Disclosures & Metrics: The Compensation Committee’s Role
– Plan Design & Goal Setting Amid Uncertainty & Volatility
– Key Changes in Investor & Proxy Advisor Policies & their Impact in 2025
– Metrics & Perks: Notable Observations from the 2025 Proxy Season So Far
– Compensation-Related Shareholder Engagement
– Did Dodd-Frank Rules Reduce or Curb CEO Pay or Change Incentive Design?
During the program, Blair shared these thoughts on the use of discretion and investor perspectives:
Discretion is still suspect. I expect we will, again, from a tariff standpoint, start to see more discretion being used, particularly on short-term incentive programs, just because short-term incentive goals were set before we knew the full impact of the tariffs. We knew they were coming, but we had no idea what the impact was going to be.
A number of clients are trying to get ahead of that and to think about how they might create a framework for what discretion might look like, developing a scorecard, for lack of a better term, where they can look at the things that are within their control. Just to give a few examples, it might include things like:
How are you doing relative to mitigating the tariffs?
How are you doing on a relative performance basis, not just on TSR, but on financial measures, on market share, on relative gross margin, on relative ROIC?
Are you actually outperforming?
Are there strategic initiatives related to customers or channels that you can continue to move forward?
How are you performing operationally?
Discretion will be looked at with suspicion, but in order to have some basis for discretion around your business that is both compelling and does not play too strong a hand, you could think about it in terms of, “if you fall off your thresholds, or even if you’re right hanging at threshold, but you’ve outperformed your peers, there may be room for discretion.” We’ll have to see how the stock market performs and how shareholders feel.
Members of this site can access the transcript of this program for free. If you are not a member of CompensationStandards.com, email info@ccrcorp.com to sign up today and get access to the full transcript.
Programming Note: We won’t be blogging tomorrow in recognition of the Juneteenth holiday. Our blogs will be back on Monday.
I’m even more excited for our fall “Proxy Disclosure & 22nd Annual Executive Compensation Conferences” now that we’ve pulled together the agenda. Our experienced speakers will be covering all the things you want to hear about right now (and the things you’ll want to hear about in October)! Conference sessions include:
With the conferences in Vegas this year, we also had a little too much fun sprinkling phrases like “play your cards right” and “your ace in the hole” throughout the panel descriptions.
Our “early bird” registration deal is still available for in-person registrations! Our Conferences will be held Tuesday & Wednesday, October 21-22, at Virgin Hotels Las Vegas, with a virtual option for those who can’t attend in person. Reach out to our team to register by emailing info@ccrcorp.com or calling 1.800.737.1271.