Earlier this month, I shared some data on how companies are using one-time awards and noted that structural considerations are key to mitigating investor concerns. This Semler Brossy article (which Liz blogged about last month) compares the size of a special grant to the likelihood of an “against” recommendation from ISS. Not surprisingly, smaller grants, especially grants made to NEOs other than the CEO, are more likely to fly under the radar (i.e., not raise concerns).
Proxy advisors generally scrutinize special awards, but they do not uniformly recommend ‘Against’ programs that include them. Most awards are noted but do not have a substantial impact. Award size is a major indicator of whether a particular award will draw an ISS ‘Against’ recommendation. Smaller awards, while not immune from criticism, are accepted as a necessary reality by investors. Larger awards receive significantly less leeway, though those do not guarantee an ‘Against’ recommendation.
Among the awards Semler Brossy reviewed, if the award was less than half of target compensation, ISS recommended ‘Against’ about 25.8% of the time. Once the award was greater than three times target annual compensation, ISS recommended ‘Against’ 68.1% of the time. Many of the smaller awards were not the direct “cause” of the low vote but were instead caught up in broader circumstances, such as a pay-for-performance misalignment or an outsized award for another executive.
Over 1x target compensation seemed to be the level at which ISS was more likely than not to recommend against say-on-pay.
Late last month, I shared three approaches to incorporating AI into incentive plans. This FW Cook article in Corporate Board Member also shares thoughts on that topic and predicts that:
As spending on AI leadership, infrastructure and enterprise-wide transformation efforts continue to escalate, investors may begin pressing companies to measure whether those investments are actually creating value. “As companies get clarity around the best way of quantifying returns on AI investment, it will serve as the logical bridge to incorporating related metrics into compensation programs,” says Kaplan. “At that point, the qualitative goals that we are currently seeing in bonus plans will likely morph into quantitative metrics that are more meaningfully integrated into incentive plans.”
It also points out that AI has broad implications for compensation design beyond AI metrics themselves, since, like anything uncertain that is central to corporate strategy, it’s exacerbating the already challenging process of setting multi-year goals.
As companies lean further into AI-driven strategies, the unpredictability surrounding future business models and operating results could make traditional multi-year financial goal setting more difficult, says Kaplan. “An indirect consequence of this may be a shift back toward metrics tied to share price or total shareholder return, or a re-examination of stock options as an equity vehicle, all of which are strategically agnostic and reward for shareholder value creation without relying on precise long-term forecasting.”
In 2022, Liz shared many ways companies grappled with forecasting challenges in response to COVID-19 uncertainty. At the time, she noted that these practices “were carried into the 2021 compensation year – and may linger even longer.” With tariffs, geopolitical conflicts and AI, perhaps Liz’s title, suggesting that some of these practices were “here to stay,” was prescient.
Our 2026 Proxy Disclosure and Executive Compensation Conferences are just around the corner. Our conferences will be held on October 12th & 13th in person in Orlando and will also be available online for virtual participants. Our discounted “early bird” rate expires on July 24th, so you need to act fast to ensure that you don’t miss out!
With an agenda featuring two days of fast-paced, topical panels, an all-star speaker lineup, and Dave Lynn’s interview with Corp Fin’s Deputy Director Christina Thomas, attendees will receive critical insights into the latest SEC rulemaking initiatives and developments in governance, disclosure practices, activism & shareholder engagement, and executive compensation.
If you’ve been following our blogs, webcasts, podcasts and newsletters, you know that the SEC has turned on the rulemaking firehose – and the agency has indicated that there’s plenty more to come! This year more than ever, you can’t afford to miss the insights that our expert panelists will provide on the latest developments.
Register online at our conference page or contact us at info@CCRcorp.com or 1-800-737-1271. Do it today so you don’t miss out on our discounted “early bird” rate!
Even though we (thankfully) put the pandemic behind us several years ago, we can’t say the same for business complexities and surprises. When it comes to compensation plans, that may be why a few pandemic-era practices have continued.
This memo from ISS Corporate says that compensation committees continue to prioritize flexibility for short-term incentives. They’re doing this by using a greater number of metrics than in pre-pandemic times, including non-financial metrics that may involve subjective measurements. Here’s an excerpt:
Although the growth of metric counts and the use of individual/non-financial metrics has slowed slightly from immediate post-Pandemic levels, neither trend shows signs of returning to pre-Pandemic levels. Short-term incentive program design has thus undergone a paradigm shift: more complex programs and more qualitative metrics are used to mitigate the risk of non-vesting and provide flexible opportunities to ensure vesting independent of performance. That protects executive paydays (and, ideally, executive retention) well after the macroeconomic shocks of the Pandemic have subsided.
Thus, short-term incentive design implies a riskier and more challenging business environment than before the Pandemic, even if not directly due to the lingering effects of the Pandemic. This situation is seen as justifying enhanced executive compensation in ways notably different than pre-Pandemic norms and expectations, both in terms of investor understanding of program design and achievement and the importance of a direct link between pay and performance. Declining rates of say-on-pay failures seem to affirm the investor viewpoint that business now is harder than before the Pandemic and executive compensation focused on outright compensation is more acceptable.
The memo says that companies with more metrics tend to have higher payouts – but those payouts may not translate neatly to higher returns for shareholders. Investors could take issue with that if the short-term incentive plan is supposed to incentivize year-over-year stock price increases. However, the memo acknowledges that this component of compensation programs may be geared more towards retention. Here’s concluding food for thought, which may be helpful in communicating about plan design:
At the same time, these trends are partially explainable by reflecting on the focus of incentivization: if the intent is to promote executive retention by constructing near-term awards that are realistically obtainable — and that remain so even in years of market turmoil such as during the Pandemic — the question of the relationship between payouts and performance takes on a different contour when market participants consider the role of short-term versus long-term incentive compensation.
Whether these trends extend beyond the 2026 annual meeting cycle remains uncertain. In the absence of a significant external disruption comparable to the Pandemic, prevailing market norms are likely to continue favoring more complex short-term incentive structures with reduced reliance on purely financial metrics. Although some trends, such as complexity, appear to have plateaued, emerging practices, once established, can proliferate as companies seek to remain competitive in attracting and retaining executive talent, given the central role of peer benchmarking and comparative assessments in executive compensation decisions. From this perspective, short-term incentive design can be understood less as a direct reflection of company performance and more as an expression of the board’s assessment of, and confidence in, management’s leadership.
The Division is considering recommending that the Commission propose rule amendments to Item 402 of Regulation S-K to rationalize executive compensation disclosure requirements.
In addition to proposing changes to Item 402, the Reg Flex Agenda says that – among other things – the SEC is considering proposing rules that would modernize the Rule 14a-8 requirements for shareholder proposals, amend other proxy rules, and rationalize disclosure requirements.
As we’ve shared in prior blogs, the SEC’s May 2026 proposals on filerstatus and semi-annual reporting could also have big implications for executive compensation disclosure.
As John noted in his blog, the dates tied to these items are aspirational and signify general timeframes versus precise dates. And while the Reg Flex Agenda provides insight into the SEC’s current rulemaking priorities, it isn’t a definitive guide for anyone trying to predict SEC rulemaking for purposes of specific board agendas, budget and workflow. Still, it will be exciting to see what may be in store!
As Meredith noted last week, we’ve been seeing relatively strong say-on-pay support this year. Average say-on-pay support clocked in at 91% as of June 1st for S&P 500 companies, according to this FW Cook memo. But the memo explains why it’s important for compensation committees and their advisors to look beyond the numbers – for signals that could improve your fall engagements and potentially influence compensation decisions in the coming year. Here’s an excerpt:
Context determines what a result means more than the number itself. Modest erosion from a historically stable baseline reads differently than a fourth consecutive decline. A drop that would look manageable in isolation is more significant when it comes from long-supportive holders, or when the proxy advisor’s critique, shareholder feedback, and vote pattern all point to the- same issue.
Start by taking the vote apart before explaining it. Compare it to prior years. Determine whether opposition was concentrated or broad-based. Review how large holders appear to have voted and connect the result to any concerns heard during pre-meeting shareholder engagement. Low-90s support, and in some cases high-80s support, may not require action, but it may still warrant a closer read if opposition is concentrated, recurring, or tied to known concerns.
When it comes to using voting results to inform off-season engagements, the memo says:
Off-season engagement should start with the questions the Committee needs answered rather than starting with a promise of change.
Ain’t that the truth! The memo shares the types of questions that companies might want to ask depending on their circumstances.
ISS recently wrote a piece on say-on-pay outcomes and one-time awards for the HLS Corporate Governance blog. The blog reiterates the continued strength of say-on-pay outcomes, but here’s an interesting tidbit:
Increases in the prevalence and size of one-time awards have not translated into lower support levels or more failures. Rather than reflecting a reduction in the use of one-time awards, companies may be deploying them more selectively or structuring them in ways that mitigate investor concerns.
As far as trends in the use of one-time awards, the blog shares:
Following a post-pandemic peak of nearly 30% of Russell 3000 companies in 2021, the prevalence of one-time equity awards declined steadily through 2024, bottoming out at 25% and reflecting a normalization of compensation practices. However, year-to-date data disclosed for fiscal year 2025 indicates a reversal of that trend, jumping to 27% [. . .]
Most one-time equity awards remained concentrated in modest value ranges, with a majority falling below $5 million. However, the upper end of the distribution has shifted. Among S&P 500 companies, larger one-time awards have become more common, particularly in the $5 million to $20 million range.
Notably, so-called mega grants exceeding $20 million increased in 2025 rising in prevalence by approximately 63% over the previous peak in 2021. These mega grants are most often associated with executive recruitment, retention, or leadership transitions requiring companies to secure or retain key talent. Although these awards remain rare, the increase suggests more willingness among some large-cap companies to utilize sizable grants. In contrast, companies across the broader Russell 3000 exhibit a more modest distribution, with most awards concentrated below $1 million and fewer in the largest tiers.
All types of one-time awards — sign-on, make-whole, retention, moonshot — get quite a bit of attention from investors and proxy advisors. To some extent, there has been a perception that special awards evidence that the regular annual compensation program isn’t working as intended. But I get the sense that this perception is shifting — maybe because companies have gotten better at communicating their rationale — and there’s greater recognition that there is an appropriate time and place for a special award. The blog says:
One-time awards typically remain a key tool for addressing discrete compensation situations, such as executive retention or transitions. Although prevalence remains below peak levels following the pandemic, the recent increase suggests companies have experienced a greater need to address retention and turnover concerns during the year.
As far as how companies can selectively deploy special awards and structure them in ways that mitigate investor concerns, I’m looking forward to hearing from our speakers on “The Top Compensation Consultants Speak” panel at our fall conferences, who will do a lookback at special awards in the last year and discuss do’s and don’ts.
Our agenda features two full days of fast-paced, topical panels, an all-star speaker lineup, and Dave’s interview with Corp Fin’s Deputy Director Christina Thomas. Our Fall Conferences will be a great opportunity to get up to speed on the SEC’s latest rulemaking initiatives, as well as other developments in executive compensation, governance, disclosure practices, activism and shareholder engagement.
You can register online at our conference page or contact us at info@CCRcorp.com or 1-800-737-1271. Do it today so you don’t miss out on our discounted “early bird” rate!
Programming Note: Speaking of the holiday weekend, our blogs will be off tomorrow and return on Monday. Have a safe and happy Semiquincentennial Fourth of July.
As you’re making and executing on your summer vacation plans and fun beach reading lists, this Cooley alert suggests, if you’re an executive compensation professional, you don’t forget about what you might wish you had been doing or reading from a professional perspective to feel well prepared for compensation season once the fall arrives. What might that look like? The alert suggests starting with your comp committee meeting checklist and figuring out where you might be better off if you gave yourself the gift of a head start. That might mean you start to:
– Evaluate how in-flight 2026 compensation programs are faring, and, as a result, whether there may be reason to give early thought to changes for the 2027 programs.
– Evaluate whether the existing programs are resulting in any unanticipated risks due to changes in economic and geopolitical circumstances since grant.
– Evaluate whether new-hire practices remain generally appropriate to avoid undue scrambling at the time of hire.
– Evaluate the adequacy of share reserves given dilution projections so that you can start marshaling support for an increase.
– Consider whether any additional clawback protections may be appropriate considering your circumstances.
– Evaluate the adequacy of compensation governance procedures generally and whether changes should be put in place for the coming compensation season.
– Give thought to whether the annual proxy disclosure could benefit from a fundamental refresh, which is a notoriously time-consuming exercise and ill-fitted to a pivot late in the year.
– Make sure any annual stockholder outreach is on track and preferably ahead of pace, whether driven by reason of say-on-pay results or otherwise.
If you don’t yet have such a checklist, the alert also suggests how to start developing one.
Pearl Meyer reported in this HLS blog post that the growing importance of AI has yet to be reflected explicitly in many incentive compensation programs.
Based on a review of approximately 2,500 public company proxy statements filed in 2026, we identified 58 companies that incorporate AI into executive incentive programs through formal metrics, strategic objectives, or executive performance assessments—just 2%. Of those, only 12% use an explicit AI metric.
They identified three approaches to incorporating AI into incentive plans — using explicit AI metrics, embedding into broader goals or incorporating into individual performance considerations.
Explicit AI Metrics. A small group of companies has introduced discrete AI measures, typically with modest weighting.
For example, one industrial company has replaced a prior ESG component in its annual incentive plan with a roughly 5% AI adoption and utilization metric focused on enterprise deployment. In another example, a large retailer has taken a different approach, incorporating AI into long-term incentive awards tied to digital tools and technology experience, linking AI to customer engagement and operational execution over a multi-year period.
AI Embedded in Broader Goals. Sixty percent of the public companies we identified are incorporating AI within broader technology or transformation objectives focused on execution and efficiency.
Companies are embedding AI within broader transformation objectives in several different ways. For example, a specialty insurance company incorporates AI-related objectives into its short-term incentive plan through operational efficiency and technology deployment goals, with achievement directly influencing payout levels. A life sciences company includes AI within broader workforce and enterprise transformation initiatives tied to training, governance, and adoption. Similarly, a financial services organization links AI governance, adoption, and deployment milestones to a broader multi-year transformation strategy.
Qualitative and Individual Performance Considerations. A third group of companies (28% of the identified public companies) addresses AI through individual performance assessment rather than formal metrics.
In these cases, compensation committees consider leadership in advancing AI initiatives, enterprise adoption, and contribution to innovation. For example, one organization includes AI usage and governance as part of an executive’s individual performance goals, such as establishing guidelines for AI use and managing associated risks. Another incorporates AI-driven productivity and insights into broader executive performance evaluations.
The blog says that measurement is one of the major hurdles. “Metrics tied to adoption can encourage activity without ensuring results.” If this is something you’re thinking about, check out the blog’s list of governance considerations for compensation committees.
ISS announced last week that their peer group submission window will open at 9:00 AM ET on Monday, July 6, for companies with annual meetings between September 15, 2026, and January 31, 2027. Submissions will be accepted until 8:00 PM ET on Friday, July 17. Here’s a reminder from the announcement:
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. and Canada is available on the ISS STOXX website here.