Liz recently shared Dragon GC’s third annual report on shareholder engagement responses to adverse Say-on-Pay votes, which summarizes the results of its analysis of engagements conducted and disclosed by 14 Fortune 1000 companies that had sub-optimal Say-on-Pay outcomes during the 2025–2026 annual meeting season. As she noted, this report shares real-world examples for six types of responsiveness disclosures it identified in its review. Here are some things that stood out to me from the examples:
– The companies’ engagement strategies were tailored to their circumstances. Some companies disclosed broad, board-involved outreach focused on identifying concerns; some companies have such robust recurring programs that they relied on those rather than a single post-vote outreach effort; and others could specifically structure their engagement around the specific compensation concerns that had already surfaced.
– As usual, responses to investor feedback varied widely and included:
Reducing target annual awards
Exercising negative discretion
Committing to no above-target or one-time awards in a year
Adopting a policy not to grant front-loaded or off-cycle awards, except in limited circumstances
Revising the mechanics of incentive programs
Replacing metrics
Increasing the proportion of compensation that is performance-based
– Some of the responsiveness disclosures touted governance reforms, which don’t necessarily come to mind when we think about responding to low Say-on-Pay votes. One company appointed a new chair of its compensation committee, added two members and conducted an RFP process that resulted in it retaining a new independent compensation consultant.
– Some companies disclosed that their compensation committees determined that no program changes were warranted, but they beefed up their disclosure regarding certain arrangements, metrics or decision-making processes where it seemed that expanded or revised disclosure could improve investors’ understanding.
For those interested in thorough or unique responsiveness disclosures, I’d encourage you to follow Mark Borges’s Proxy Disclosure Blog, where he shares interesting disclosures on many topics, including responsiveness, like this engagement and responsiveness disclosure provided by a smaller reporting company.
Liz recently blogged about how the potential expansion of scaled disclosure eligibility is likely to mean more companies will be making more judgment calls about what to include in their proxy statements on a voluntary basis. Even for companies that don’t hold a say-on-pay vote, proxy statements remain a valuable communication tool, and some disclosures that may become voluntary provide helpful context for why boards and compensation committees made the decisions they made. Plus, companies that remove any disclosures investors want to see may face backlash.
Liz and I recently chatted about the importance of waiting for the final rules to understand the regulatory impact of any decision to provide voluntary disclosures. That’s because the proposed rule changes contemplate eliminating Item 10(f) of Regulation S-K, which is focused on smaller reporting companies (a category the release proposes to eliminate), but is also where the rules provide that scaling decisions be made on an item-by-item basis. In the talking points submitted for the course materials for our fall Proxy Disclosure & Executive Compensation Conferences, Cooley’s Brad Goldberg notes:
The Society for Corporate Governance comment letter asked the SEC to clarify in the final rule that “a-la-carte” voluntary disclosure will still be permitted and to further clarify that voluntary disclosure will not be limited to an item-by-item basis (i.e., a company could choose to include a CD&A and all compensation tables but omit pay ratio disclosure).
As Brad’s examples suggest, the ability to elect between scaled and non-scaled requirements within an item (so long as, as the Society comment letter notes, the disclosure, at a minimum, satisfies the scaled requirements of that item) would be particularly helpful for Item 402, which has so many subsections it’s almost to the end of the alphabet.
Depending on how this shakes out in the final rules, new “non-accelerated filers” may have the opportunity to decide which parts of Item 402 to omit or maintain, both to tell their compensation story and to satisfy investor preferences. In that case, understanding your investors’ disclosure preferences will be key. Though future engagement may be advisable, investor comment letters on the filer status proposal may help you understand which disclosures certain investors consider essential. This Pay Governance alert says:
One of the clearest messages from both EGC and Roundtable letters was that investor respondents generally support simplifying executive compensation disclosure but not eliminating disclosure.
…ICI stressed the importance of not eliminating the CD&A from all NAFs, as this information “provides transparency and enables investors to understand and evaluate the potential effects of executive compensation arrangements on a company’s stock price”.
This issue is only one of the practical implementation questions our speakers will be discussing at our Proxy Disclosure & Executive Compensation Conferences. We’ll be posting over 200(!) pages of course materials containing practical nuggets and real-life examples from our conference speakers to our conference platform in the weeks leading up to the conferences. Conference attendees get exclusive access to these course materials. It’s worth registering for the conference just for these alone!
You can register online or by contacting us at info@CCRcorp.com or 1-800-737-1271. Make sure to book your hotel room soon too because the block is filling up quickly!
With ISS’s latest policy updates loosening the proxy advisor’s preference for at least 50% of LTI in PSUs as long as time-based equity meets its long-term parameters, this Semler Brossy article says some companies are considering taking advantage of that flexibility. There’s the old adage “if it ain’t broke, don’t fix it,” but for some companies, maybe the old ways are broken. The article says companies aren’t just considering a change to make a change, but to address some challenges they’re facing that may actually be making their PSUs less effective.
One of investors’ perceived issues with PSUs is the challenge of setting accurate multi-year performance goals, especially amid today’s sustained macroeconomic and geopolitical volatility. When the future is murky or rapidly changing, multi-year goal setting can be particularly difficult for some companies.
In addition, not all situations lend themselves to longterm goal-setting, even if volatility subsides. High-growth and/or cutting-edge companies may also face difficulties forecasting three-year financial targets with accuracy.
Similarly, companies undergoing significant investment phases that will impact specific financial metrics, or those expecting downward revision to financial performance, may struggle to set goals that remain meaningful throughout performance periods.
Finally, overly rigorous goal setting can also introduce retention risks. Compensation committees find themselves walking a precarious line between setting challenging yet achievable goals. Miss the mark with overly aggressive targets, and executives face low holdings and realized pay, potentially dampening motivation and causing unwanted attrition. Set goals too conservatively, and companies face “over payouts” that draw criticism from proxy advisors and shareholders.
Semler Brossy suggests that compensation committees ask themselves:
Do standard financial goals best capture our company’s strategic priorities?
Do performance-based metrics encourage the behavior we want from our leadership team?
Does a focus on 3-year performance goals directly align with our business cycles?
If a change is appropriate, the article addresses some options, including some tried-and-true methods like relative metrics and shorter performance periods, but also increasing the weighting of RSUs or options:
Increased RSU or options weighting to create more modest PSU mixes (such as 25% rather than 50% of the equity grant) can reduce overreliance on PSUs while maintaining some performance-based component. Replacing PSUs with a lower, equivalent value of RSUs can even reduce pay relative to peers while improving pay delivery certainty—a combination that may resonate with both executives and shareholders concerned about pay levels. [. . .] [C]ompanies can merge this approach with longer vesting to further enhance the long-term alignment with shareholders.
Just because ISS has softened its policy on PSUs doesn’t mean that companies making a change won’t face a challenging say-on-pay season. Telling your story will continue to be critical.
This is just one of the timely topics that will be discussed during the panel “The Top Compensation Consultants Speak” at our Proxy Disclosure & Executive Compensation Conferences on October 12 – 13 in person in Orlando and virtually streamed. Semler Brossy’s Blair Jones will be addressing evolving conversations around equity design, including when PSUs work well, when they don’t and when to consider a new design – plus long-vested RSUs and other alternatives to traditional PSUs.
Don’t miss these critical conversations! Sign up for our 2026 Proxy Disclosure Conference and 23rd Annual Executive Compensation Conference today. Register online or contact us at info@CCRcorp.com or 1-800-737-1271.
Compensia’s Mark Borges, who has been blogging up a storm about clawback disclosures on his members-only Proxy Disclosure Blog here on CompensationStandards.com, recently wrote a summary of his survey of Dodd-Frank compensation disclosures that have been included in annual reports or proxy statements pursuant to Item 402(w) of Regulation S-K. Here are some of Mark’s findings:
– 118 companies reported on the results of their compensation recovery analyses, with 19 companies disclosing that those analyses required clawbacks.
– The aggregate amount recovered to date is $9.8 million.
– Recoveries have ranged from $2,900 to $3.8 million, with an average of $561,000 and a median of $193,000.
– Recovery methods for bonuses have included repaying in cash a bonus already paid or earned, or reducing or canceling earned amounts. For equity, recovery methods have varied, with companies canceling future share issuances, reducing issued shares, requiring a cash repayment of value or returning unearned shares.
– Two companies have waived repayment, with one citing the impracticability exception and one disclosing that it was unable to contact former executives.
In the memo, Mark shares more detail on the recovery approaches used to date and the challenges that come with each.
We’ve noted that more companies are seeing strong say-on-pay support this year. This FW Cook memo gives stats as of July 1st and notes that lower support seems to correlate with large “special awards”:
The 2026 say-on-pay season produced stronger results for most S&P 500 companies. Nearly 75% received at least 90% shareholder support, up from 70% in 2025, while the share below 70% declined
from about 6% to 5%.
The low-support group became smaller in 2026, but the remaining weakness was more concentrated. Large special awards appeared in half of the 22 cases below 70% support, and all five failed votes involved an outsized equity grant.
Among widely held companies receiving an adverse ISS recommendation, support topped out in the mid-70s and averaged 56.9%, lower than in any pre-pandemic year in the period reviewed. Much of that weakness was concentrated among companies with large one-time awards.
The obvious conclusion to draw is that companies that make large off-cycle awards are at greater risk of a low say-on-pay vote – by which I mean falling below the magic threshold of 70-80% that triggers heightened scrutiny of “responsiveness” in the following year. As the FW Cook memo notes, even awards that are performance-based can trigger a negative vote if they are large, the goals aren’t fully disclosed and/or the grant is in addition to the typical grant-cycle awards. Say-on-pay support may rebound in the following year if the company can show a return to its regular award program.
But reading between the lines, some companies come up short for reasons other than a large special award. That’s one reason why “responsiveness” disclosure may go beyond a commitment to avoid outsized grants (another reason is that companies may try to track what proxy advisors and investors say they want to see for “responsiveness” – e.g., ISS Exec Comp Policies FAQ 11). For real world examples, this report from Dragon GC looks at how companies disclosed “responsiveness” in the year following an adverse outcome. The report groups responsiveness disclosures into six categories and gives examples for each:
1. Engagement Strategy – Broad and Direct Engagement; Structured and Recurring Engagement; Targeted and Topic-Specific Outreach
2. Response to Feedback on Executive Compensation – Pay Reductions and Lower Award Opportunities; Restrictions on Special, One-Time and Front-Loaded Awards
3. Incentive Plan and Equity Structure – Incentive Plan and Performance-Metric Redesign; Increased Performance-Based Pay and Equity Alignment
4. Governance and Policy Reforms – Stronger Compensation Governance and Risk Controls; Compensation Committee, Board and Adviser Enhancements
5. Enhanced Transparency and Disclosure Improvements – Detailed Compensation Reporting and Proxy Enhancements
6. Retention of Core Compensation Programs – No Substantive or Minimal Program Changes
I blogged yesterday about FASB ASU 2024-03, which will soon require public companies to include “employee compensation” and other disaggregated expense data in the notes to financials. This CLS Blue Sky blog from several b-school profs (based on their paper here) looks at how investors could use labor costs in particular to predict a company’s future performance, while noting that the required info still may not paint a full picture for analysts. Here’s an excerpt:
Measuring labor costs is hard precisely because firms do not disclose them. We use data from Revelio Labs, which standardizes millions of public employment records to estimate firm-level compensation, to build wage measures for roughly 25,000 firm-years from 2009 to 2022. The data let us split labor into three functional categories, general and administrative (G&A), sales and marketing (S&M), and research and development (R&D), a detail that no mandated financial-statement data currently provide. We validate our wage estimates against three benchmarks: voluntarily disclosed staff expense, median employee pay from proxy statements, and an industry-imputed wage measure based on voluntary disclosures. We caution that the Revelio measures are estimates, not audited figures, and are subject to selection and measurement error. Both sources of noise bias our tests toward finding smaller effects, so our estimates should be read as a conservative floor on the usefulness of audited labor-cost information.
Our first finding is that detail matters, and the useful detail is functional. Separating SG&A into aggregate wage and nonwage components yields only modest gains in predicting future performance. The larger gains arise when wages are split by function. The three components behave in economically distinct and intuitive ways: S&M wages track near-term revenue growth, R&D wages are the most informative about long-horizon revenue growth and future SG&A intensity, and G&A wages are comparatively uninformative about future fundamentals. These patterns persist when we control for the matched nonwage expense within each function, so labor is carrying information that nonlabor costs do not. Additionally, the gains are largest among firms with smaller workforces, where hiring choices map more directly onto commercialization and innovation.
The information also has capital-market consequences. Periods of high wage volatility, particularly in G&A and R&D wages, are associated with larger analyst revenue-forecast errors and with greater market illiquidity. Firms that voluntarily disclose aggregate wages attenuate some of the G&A-related uncertainty, but the effect is imprecise and does not fully resolve the forecasting errors or liquidity costs tied to more forward-looking inputs such as R&D. Taken together, the evidence is consistent with labor-cost disaggregation providing information that analysts and investors do not already have, and the usefulness of both aggregate and disaggregated labor costs.
What does this mean for the standard? The companies’ empirical premise does not hold up: Labor-cost information is useful, and the market prices its absence. More important, our evidence cuts in a second direction that the debate has largely missed. The standard requires compensation to be disclosed within the functional captions firms already present, but it does not require firms to separate R&D, S&M, and G&A on the face of the income statement, meaning that the labor-cost disaggregation our results find most useful may not be disclosed. Because the largest predictive gains come precisely from splitting labor functionally, a rule that stops at compensation-within-existing-captions is a step forward, but it can be improved by requiring firms to report R&D, S&M, and G&A in the income statement.
The professors acknowledge that they’re only considering the “investor benefit” side of the ledger here – not diving into how costly it will be for companies to collect and disclose the information. They note that a complete cost-benefit verdict will have to wait until the standard has been in force for several years.
It’s been a couple years since I’ve blogged about FASB’s initiative to require companies to quantify labor costs and other income statement expenses. Even though the SEC hasn’t moved forward with detailed human capital disclosure requirements, “public business entities” are still going to need to start providing employee compensation info in the notes to financials in response to FASB Accounting Standards Update 2024-03, which was adopted in November 2024. This Deloitte guide explains what ASU 2024-3 will require and what in-scope companies should do to prepare. Here are a few key takeaways (also see this FASB alert):
The DISE standard introduces new requirements related to disaggregating certain income statement expense captions within the footnotes to the financial statements. These disclosures are required for annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027.
The ASU does not change the expense captions an entity presents on the face of the income statement or the recognition and measurement principles of other GAAP standards; rather, it requires disaggregation of certain expense captions into specified categories in disclosures within the footnotes to the financial statements.
An expense caption presented on the face of the income statement within continuing operations is considered relevant and therefore subject to disaggregation if it includes any of the following natural expense categories:
(1) purchases of inventory;
(2) employee compensation;
(3) depreciation;
(4) intangible asset amortization; and
(5) depreciation, depletion, and amortization (DD&A) recognized as part of oil- and gas-producing activities or other types of depletion expenses.
Entities will need to disaggregate relevant expense captions into these five natural expense categories (the “required expense categories”) in a tabular presentation. The tabular disclosure for each relevant expense caption will also include certain other expenses and gains or losses that must be disclosed under existing U.S. GAAP (the “tabular integration of other disclosures”), expense reimbursements, and other expenses when applicable. The ASU does not change or remove existing expense disclosure requirements; however, it may affect where that information appears in the notes to financial statements because the ASU requires entities to include certain current disclosures in this tabular format.
The requirement applies to “public business entities,” which the standard defines as entities:
– Required by the SEC to file or furnish financial statements, or does file or furnish financial statements (including voluntary filers), with the SEC (including other entities whose financial statements or financial information are required to be or are included in a filing).
– Required by the Securities Exchange Act of 1934 (the Act), as amended, or rules or regulations promulgated under the Act, to file or furnish financial statements with a regulatory agency other than the SEC.
– Required to file or furnish financial statements with a foreign or domestic regulatory agency in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer.
– That have issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market.
– That have one or more securities that are not subject to contractual restrictions on transfer, and it is required by law, contract, or regulation to prepare U.S. GAAP financial statements (including notes) and make them publicly available on a periodic basis (for example, interim or annual periods). An entity must meet both of these conditions to meet this criterion.
An entity may meet the definition of a public business entity solely because its financial statements or financial information is included in another entity’s filing with the SEC. In that case, the entity is only a public business entity for purposes of financial statements that are filed or furnished with the SEC.
The ASU does not apply to a not-for-profit entity nor an employee benefit plan.
The Deloitte guide points out that in-scope companies should prepare now for these disclosures, because they may need to collect underlying data may not currently be readily available beginning in 2027 (for calendar year companies) – and companies may need to consider estimates, information systems and reporting changes, and adjustments to processes and controls. The nature and extent of new information required are expected to vary by entity and industry – as illustrated in this separate Deloitte alert for consumer products and retail companies.
From a governance standpoint, this update obviously affects audit committees – and hopefully they are already discussing it. But as Meredith recently blogged, human capital is still on the agenda for many compensation committees as well. Comp committees may want to think ahead about how this new data will be presented and used – by the committee itself as well as other stakeholders.
Earlier this summer, the New York legislature passed the “No Severance Ultimatums Act” – also known as SB S372A. Although it’s still awaiting Governor Kathy Hochul’s signature, companies may want to track the bill because it will immediately amend New York law if signed. This Sheppard blog explains what the law will do if it’s adopted:
Under the Act, any employer offering a “severance agreement,” defined as an agreement offered upon separation of employment that requires the employee to release waivable claims against the employer, must notify the employee that:
– The employee has a right to consult an attorney about the agreement;
– The employee has at least twenty-one (21) calendar days to consider the agreement;
– The employee may revoke the agreement within seven (7) calendar days of signing;
– The agreement does not become effective and enforceable until after the revocation period expires; and
– The employee may make a knowing and voluntary choice to sign the agreement prior to the end of the consideration period, provided such decision is not induced by the employer through fraud, misrepresentation, a threat to withdraw or alter the consideration period, or by providing different terms if the employee signs early.
A severance agreement that does not comply with these provisions would be void and unenforceable.
The Sheppard team points out that these requirements are similar to the federal Older Workers Benefit Protection Act (“OWBPA”) – which applies to severance agreements made with employees aged 40 or older. The Act would expand these federal protections to most employees covered under the NYLL, regardless of age, with an exception for severance agreements negotiated pursuant to a collective bargaining agreement (provided the agreement specifically acknowledges the provisions of Section 215-d).
Our site doesn’t give employment law advice – or any legal advice, for that matter – but consider this a nudge to call up your friendly employment lawyer to evaluate how the law would apply to your company, and review and revise forms if needed. The Sheppard blog emphasizes the need to plan ahead, but also points out that there are some open questions:
If signed into law, the Act would take effect immediately. The Act does not include a grace period, which means employers may need to implement changes on short notice. In addition, any severance agreement that fails to meet the Act’s requirements would be rendered void and unenforceable, invalidating not only the severance agreement itself but also the employee’s release of claims. As a practical matter, an employer could find itself in the position of having paid severance to a departing employee only to learn that the release it obtained in exchange has no legal effect.
The Act is silent on its application to severance agreements that are already in progress at the time of enactment. Unresolved questions include whether agreements that have been delivered but not yet signed would need to be reissued in compliant form, and whether agreements executed shortly before the effective date, but still falling within what would constitute the Act’s seven-day “revocation” window, could be subject to challenge. In light of these uncertainties, employers should evaluate any pending New York severance agreements now and develop contingency plans, including extending existing deadlines or pausing the finalization of agreements until compliance can be confirmed.
Among other things, the blog also recommends revisiting standard scripts, correspondence and workflows used in communicating severance agreements, to ensure they don’t run afoul of the law and that payments aren’t processed before the revocation period ends.
FW Cook recently released its latest director compensation report, which examined non-employee director pay and design at 300 U.S. public companies across industries and market caps in 2026. As shared in the announcement, they found that:
– Pay increases are slowing/moderating, with total compensation interquartile ranges continuing to compress
– Company size remains a stronger pay differentiator than industry (spread of approximately $100,000 across size medians vs. $40,000 across sector medians)
– Core designs have changed little: equity remains approximately 60% of total pay, full-value awards are nearly universal, and 96% of companies use immediate or one-year vesting
– Technology remains the clearest sector outlier, with the highest total compensation and largest weighting to equity compensation
– Incremental committee retainers (both members and chairs) have shown little movement for several years
– Ownership guidelines and annual compensation limits are standard; retention requirements remain less prevalent
These reports are always helpful for benchmarking, so check out the detailed data in the full report for more if you’re looking to compare any of your practices. For example, the report shares:
– The average mix across the sample is 38% cash and 62% equity, similar to recent years.
– Across the sample, 90% of companies use a retainer-only structure for board cash compensation (aligned with last year).
– Additional pay for committee members is provided at 60% of the total sample, including 52% that use committee member retainers and 8% that use committee meeting fees (3% use both). About half of companies using committee meeting fees only provide them for meetings over a specific threshold.
– Across the sample, 92% of companies have director stock ownership guidelines (up from 90% last year), and 38% have stock retention requirements (usually alongside ownership guidelines). The most common guideline is to hold 5x the annual cash retainer within five years.
On stock ownership guidelines, they found that retention requirements varied a bit for large-cap companies:
The most common retention requirement is to hold some or all net after-tax shares until the ownership guideline is satisfied (66% of retention requirements), though large-cap companies also commonly require holding until retirement (46% of large-cap retention requirements), often by granting awards with built-in mandatory deferral (e.g., deferred stock units, or “DSUs”).
In the latest episode of “The Pay & Proxy Podcast,” I was joined by Cleary partner, Julia Petty. We discussed:
What we know about the status of the SEC’s executive compensation disclosure reform efforts
Highlights from the letters submitted in response to the SEC’s request for public comment
The SEC’s suspected areas of focus in any anticipated rule proposal
How the SEC’s May 2026 “Filer Status” proposal will impact executive compensation disclosures and Say-on-Pay
Potential complications for equity practices for companies that take advantage of semiannual reporting, if the SEC’s “Semiannual Reporting” rulemaking is finalized as proposed
If you have insights on compensation and proxy disclosures you’d like to share in a podcast, I’d love to hear from you. Email me at mervine@ccrcorp.com.
