In December, Liz blogged about a new California law that restricts the ability of companies to require certain repayments by employees upon separation. This WilmerHale alert explains that California isn’t a major outlier here. A few states already have similar requirements (Connecticut and Colorado, for example), and New York is now taking action.
New York’s “Trapped at Work Act” (the “Act”) was enacted on December 19, 2025, and amended on February 13, 2026 [. . .] The Act prohibits an employer from requiring, as a condition of employment, an employee or prospective employee to execute an “employment promissory note”—defined as any instrument, agreement or contract provision requiring an employee to pay the employer a sum of money if the employee’s employment relationship with that employer terminates before the passage of a stated period of time [. . .]
In addition to contracts related to residential property, sabbatical leaves and collective bargaining agreements, the amended Act expressly permits the following types of repayment agreements:
Bonuses and relocation assistance. Agreements requiring repayment of a financial bonus, relocation assistance or other noneducational incentive upon separation from employment are permitted unless (x) the employee was terminated for any reason other than misconduct (which term is not defined but likely has the same meaning as under New York unemployment law) or (y) the duties or requirements of the job were misrepresented to the employee. Unlike its California counterpart and the tuition repayment exception below, this exception does not require a standalone agreement or have other repayment limitations.
Certain tuition assistance. Similar to the California law, employers may recover the cost of tuition, fees and required educational materials for a “transferable credential.” To qualify, the repayment agreement must (a) be in a written contract offered separately from the employment contract; (b) not condition employment on obtaining the transferable credential; (c) specify the repayment amount (not to exceed the employer’s actual cost) in advance; (d) provide for prorated repayment proportional to the total repayment amount and the length of the required employment period with no accelerated payment schedule upon separation from employment; and (e) not require repayment to the employer if the employee is terminated, except if the employee is terminated for misconduct.
Unlike California’s law, the New York Trapped at Work Act does not provide a private right of action. Instead, the New York State Department of Labor is granted authority to bring enforcement actions. Employers found to have violated the Act may be fined between $1,000 and $5,000 per violation, with each affected employee representing a separate violation.
The alert has some suggestions for HR and legal teams:
Employers should review their existing offer letters and any employee repayment policies to ensure that any repayment obligations are compliant with applicable state law.
Personnel responsible for negotiating and drafting employment offers and contracts should be trained on these new laws.
Employers should consult with employment counsel before attempting to collect repayment from a departing employee. Deducting from final wages presents heightened legal risk, particularly in certain jurisdictions.
We’ve talked a lot about the shifting views of proxy advisors and institutional investors toward programs that consist primarily of time-based awards, provided vesting or retention requirements ensure these time-based awards have a sufficiently long-term horizon. This FW Cook insight summarizes the proxy advisor policy shifts concisely:
ISS will no longer automatically criticize companies granting less than 50% in PSUs, provided the time-based equity component is sufficiently “long-term,” defined as meeting one of the following thresholds:
5-year ratable or cliff vesting;
4-year vesting plus a 1-year post-vest holding requirement; or
3-year vesting plus a 2-year post-vest holding requirement.
Glass Lewis will also no longer automatically criticize companies granting less than 50% of LTI in PSUs. However, they will evaluate the overall LTI program holistically. Any reduction in PSUs should be offset by a reduction in target pay opportunity (to account for the greater certainty of time-vested awards), longer vesting periods, and sufficient rationale in the proxy statement.
The insight discusses moves being considered in light of these shifting views — specifically, compensation committees reconsidering where their LTI program falls on the spectrum of performance focus to ownership focus. They call out these examples of changes being considered:
Rebalancing the LTI mix: Reducing PSUs to 30–40% of LTI while allocating the remainder to long-term time-vested equity (e.g., RSUs with a 5-year ratable vest). This preserves a performance component while shifting the center of gravity toward long-term ownership and retention.
Repositioning stock options as “performance-based”: Options inherently carry performance leverage; they only deliver value if the stock price appreciates. But, they are not perceived as “performance-based” by proxy advisors. Attaching a 5-year vest/hold strengthens retention while satisfying proxy advisor expectations. Read FW Cook’s piece Could Stock Options Make a Comeback?
The “1-3-5 PSU”: Maintaining PSUs, but compressing the performance period from three years to one year to mitigate financial goal-setting challenges. Earned shares do not vest until the third anniversary of grant with a subsequent two-year post-vest holding period (i.e., 1-year performance period, 3-year vest, 5-year hold). This design can be further enhanced by applying a relative TSR metric or modifier over the 3-year vesting period.
But they also warn – consistent with Liz’s note that PSUs remain a “safe bet” – that “a premature shift away from PSUs could trigger a low Say-on-Pay vote, regardless of proxy advisor flexibility.” So, they suggest that 2026 be treated as a “diagnosis year” – meaning that compensation committees should focus on evaluating the current program and explore creative alternatives where appropriate.
It’s not particularly surprising, given all the news about executive turnover, that the value of sign-on and retention awards is increasing. Glass Lewis reports that this trend has a lot to do with the number of external hires and the use of make-whole awards.
With boards trying to either ensure a smooth transition, or avoid an unnecessary one, the average value of both sign-on and retention awards grew significantly from 2024 to 2025 among S&P 500 companies. […] One major reason for this trend is the increasing prevalence of make-whole sign-on awards for new NEOs.
Of the awards reviewed during the 2025 proxy season, 23% of sign-on awards were make-whole awards for Russell 3000 companies, up from 19% in 2024. The increase was more significant for S&P 500 companies, with 53% of sign-on awards citing make-whole considerations, a substantial increase from 39% the previous year (45% in 2023).
There’s simultaneously an increasing use of retention awards to avoid the disruption of turnover in the first place, but the blog argues that this can create a “feedback loop” contributing to the rising cost of executive transitions.
Such grants are likely intended, at least in part, to make it more expensive for other employers to poach executives – but run the risk of creating a feedback loop. Increases in the prevalence and value of retention awards can lead to further increases in the use of make-whole awards, which in turn lead back to further increases in retention awards.
Although often viewed with less suspicion than other one-time awards, investors still want more disclosure regarding the circumstances of significant make-whole awards.
In our 2024 Policy Survey, we asked about disclosure expectations for these awards, and found a significant gap in investor and non-investor views (Figure 4). On average, 63.4% of investors expect disclosure of the terms of the award, along with explicit confirmation that awards are time-restricted and the same size as those forfeited, vs. 30.1% among non-investors. By contrast, nearly half of non-investors responded that companies should only need to provide minimum disclosure (48.4% vs. 15.5% of investors).
One U.S. investor stated: “We would prefer a detailed breakdown, but often that is not made available. …[W]e will try to reconcile the terms and value of the award with any previous public disclosures made at the executive’s prior employer. Failing that, we will generally take the company at their word, but would engage if we hold a material position.” […]
Since then, use of the make-whole designation for sign-on awards has risen, as discussed above. In light of this trend and evident disparity in expectations, we followed up on our 2025 policy survey to better understand market perspectives on how make-whole awards are assessed – and in particular, if they are subject to the same level of scrutiny as other sign-on awards.
Non-investors were far more likely to view make whole awards as fundamentally different from other sign-on awards. Investors were split. While the top answer was to treat make-whole grants on the same basis as other sign on awards, nearly as many were willing to view them differently so long as the grants are fully disclosed and clearly equivalent to what was forfeited.
Everyone who works in the life sciences space knows that early-stage pharma, biotech & life sciences companies are their own beast. In all the recent talk about doing away with quarterly reporting, these companies – particularly pre-revenue – have been called out as one group that would uniquely benefit from a shift away from the requirement to file quarterly financial statements, since investors focus on a limited number of key data points and developments, like remaining cash, trial data and regulatory approvals.
Compensation programs for early-stage pharma, biotech and life sciences companies must also be designed to address these differences. This ClearBridge alert says:
Most public companies align executive pay with shareholder value over time. But among PBLS companies, value creation is often binary and episodic, hinging on regulatory approvals, clinical trials, and more […] PBLS companies, particularly earlier-stage, favor tools that align with unpredictable value-creation:
– Stock options preserve cash and reward long-term upsid
[A]s companies grow:
– Restricted stock unit (“RSU”) and performance-vested award prevalence increases, while the prevalence of stock options decreases (though options remain majority practice across all sizes)
– Note: Performance-vested awards typically introduced ~5 years post-IPO
– Most common performance award metrics shift from predominately project milestones to TSR and financial metrics
Because of the inherent volatility, quantums are benchmarked by “dollar value and as a percentage of market cap, to account for valuation swing.” The alert goes into greater detail on the evolution of the vehicle mix and addresses common performance periods and vesting terms.
Here’s the latest 154-page guide for compensation committees from Wachtell. This year’s guide notes that we’re in a state of flux. Here’s an excerpt from the intro:
As we enter the 2026 proxy season, compensation committee members are participating more actively than ever in the process of disclosing executive compensation and soliciting shareholder feedback. Shareholders and proxy advisory firms have increasingly signaled that compensation committees should play a role in seeking input from shareholders on a company’s executive pay philosophy, and committee members are expending increased time and energy to engage with shareholders on these issues.
The preparation of the annual proxy statement, which is often a tool to highlight how executive pay has been tailored in response to shareholder feedback, has evolved into a purpose-driven, intensive collaboration among management, the compensation committee, the compensation consultant, and external legal counsel to produce a document that serves as an executive compensation mission statement, state-of-the-union update on the performance of the business, and catalogue of shareholder engagement efforts, while at the same time complying with technical disclosure rules, the scope and breadth of which are constantly expanding.
Against this backdrop, the state of executive compensation disclosure regulation appears to be in flux, as U.S. Securities and Exchange (“SEC”) Commissioner Paul S. Atkins shared his vision on February 17, 2026 for enacting “SEC disclosure reform” that would prescribe the “minimum effective dose of regulation,” and it remains to be seen how potential changes in the disclosure requirements may impact the role of the compensation committee.
Other developments addressed by this year’s guide include:
– The state of non-compete bans and enforcement actions aimed at anticompetitive activity
– Notable Delaware decisions on compensation
– Whistleblower compliance reviews
– Updates to proxy advisor policies
As usual, the guide includes a sample “Compensation [and Management Development] Committee Charter” as an exhibit, although it notes, “It would be a mistake for any company to simply copy published models. The creation of charters requires experience and careful thought . . . we recommend that each company tailor its compensation committee charter and written procedures to those that are necessary and practical for the particular company.”
Be sure to tune in at 2 pm Eastern today, March 18th, for our webcast – “Pre-IPO Through IPO: Compensation Strategies for a Smooth Transition” – to hear Morgan Lewis’s Timothy Durbin, Alpine Rewards’ Lauren Mullen, Cooley’s Ali Murata, Pearl Meyer’s Aalap Shah, and Latham’s Maj Vaseghi share practical guidance on key compensation considerations from the pre-IPO phase through the offering and into the first chapter of public company life. Our panelists will also address questions submitted by members in advance (the deadline was March 13th).
Topics include:
– Assessing Existing Arrangements and IPO Impact
– Designing and Adopting New Equity Plans and ESPPs; Share Pool Strategy
– Managing “Cheap Stock” Issues; 409A Valuations
– Designing and Communicating Special IPO Awards
– Negotiating New Employment Agreements; Change-in-Control and Severance Terms
– Navigating Lockups, Blackout Periods and Post-IPO Selling Mechanics
– Establishing the Post-IPO Executive Compensation Program
– Building Compensation-Related Policies, Governance and Controls
– Communicating with Executives and Employees Through the Transition
– Transitioning Director Compensation (time permitting)
– Q&A: Answering Questions Submitted in Advance (15 minutes)
Members of this site can attend this critical webcast (and access the replay and transcript) at no charge. Non-members can separately purchase webcast access. If you’re not yet a member, you can sign up for the webcast or a CompensationStandards.com membership by contacting our team at info@ccrcorp.com or at 800-737-1271. Our “100-Day Promise” guarantees that during the first 100 days as an activated member, you may cancel for any reason and receive a full refund.
We will apply for CLE credit in all applicable states (with the exception of SC and NE which require advance notice) for this one-hour webcast. You must submit your state and license number prior to or during the live program. Attendees must participate in the live webcast and fully complete all the CLE credit survey links during the program. You will receive a CLE certificate from our CLE provider when your state issues approval, typically within 30 days of the webcast. All credits are pending state approval.
This program will also be eligible for on-demand CLE credit when the archive is posted, typically within 48 hours of the original air date. Instructions on how to qualify for on-demand CLE credit will be posted on the archive page.
Here are some helpful pointers that John shared yesterday on TheCorporateCounsel.net:
Disclosure of executive security arrangements is a topic that’s received a lot of attention over the past year, including from SEC Chairman Paul Atkins, who suggested that the SEC’s continued treatment of executive security arrangements as a perk doesn’t reflect modern business realities. While Chairman Atkins’ comments may give companies reason to hope that perk disclosure of these arrangements may soon end, for this year at least, the old rules continue to apply.
So, with all the attention being paid to executive security, what should companies disclose about these arrangements in their proxy statements? Over on Real Transparent Disclosure, Broc recently provided some answers to that question. Here’s an excerpt:
– Rapid Growth in Executive Security Spending: Personal security services (home security, cybersecurity, security personnel, travel security) are increasing in prevalence and cost. Disclosure rates show 64% of the S&P 100, 35% of the S&P 500 – and 10% of the Russell 3000 provide executive security services, with expectations of continued growth.
– ISS’s Evolving Position on Security Perks: While ISS historically cited security expenses critically in negative Say-on-Pay recommendations, it recently relaxed its stance. ISS now indicates it is unlikely to raise significant concerns if companies provide robust proxy disclosure explaining the rationale and assessment process behind security programs.
– Disclosure Expectations from Proxy Advisors: Adequate disclosure should describe:
-The nature of the security program
– The benefit to stockholders
– The internal or third-party security assessment
– The arm’s-length decision-making process
Broc also says that companies expecting a significant increase in executive security expenditures need to involve the compensation committee and the relevant executives early on in order to ensure a robust assessment and approval process. These companies should also provide clear disclosure of that process in the CD&A in order to mitigate any criticism they might receive from proxy advisors.
As we’ve shared on this blog, investors have become slightly more open to companies motivating performance through equity awards that vest over an extended period of time (e.g., 5+ years) – rather than based on performance objectives.
For example, in response to the Policy Survey conducted last fall by ISS Governance, 38% of investors said time-based awards were acceptable as one component of compensation plans – and 31% said that time-based awards were acceptable as all or part in certain industries.
However, a new report announced by ISS Corporate (available for download) flags that relying on time-based awards is still a minority practice, and perhaps performance awards have not been misguided after all. Here are the key takeaways:
– “Standard” companies, which incorporate performance-based awards, generally show stronger long-term shareholder returns and more measured CEO compensation growth than companies that rely solely on time-based equity. Vote support for Say on Pay was higher at these companies as well.
– Standard companies perform better across all Governance QualityScore categories, including non-compensation categories suggesting a broader pattern of stronger governance practices where performance-based awards are used. However, this is partially due to the inclusion of factors related to performance-based awards in the Compensation category.
– No-Performance Based Awards (NPBA) and Extended-Timed Based Awards (ETBA) programs remain minority practices and are becoming even less common, reinforcing performance-based equity as the dominant market expectation.
– Companies with extended time-vesting awards and companies with no-performance-based awards are smaller in size than companies with a “Standard” compensation program. They also have a similar distribution to Standard companies.
My personal view is that every company should do what their board thinks is best – taking into account how to motivate performance and retention, administrative burdens, and investor preferences. But it can be helpful to revisit the conversation from time to time, with consideration of the trends and data points covered in reports like this one. In this blog from last summer, I also shared some pros & cons of shifting to time-based awards.
This Pay Governance alert discusses the disconnect between company disclosures addressing pay-for-performance and the shifting approaches of proxy advisors and institutional investors. Companies continue to use varied approaches to describe pay-for-performance alignment, and the confusion created by PvP meant that these required disclosures didn’t fill the gap created by this lack of comparability.
Most companies describe the rationale for their performance measures, and in some cases the rigor of their performance targets, but provide limited disclosure demonstrating how pay outcomes align with performance. Some companies use realized or realizable pay analyses and supporting charts to illustrate alignment with shareholder outcomes, while others focus on “take-home” pay as evidence of alignment. These varying disclosure methods make it difficult to readily assess pay-for-performance alignment across companies.
Institutional investors and proxy advisors similarly have varied approaches to pay analysis. But the memo suggests there is a push towards a greater use of outcome-based measures:
The proxy advisors’ pay-for-performance models up until now have generally relied on SCT compensation, which reflects the grant date value of long-term incentives, rather than outcome-based compensation, which reflects the actual number of shares earned and the updated stock price.
One of the proxy advisory firms has added two outcome-based tests to its pay-for-performance model this year to supplement its SCT compensation tests . . . Vanguard has incorporated outcome-based measures in evaluating pay-for-performance in its proxy voting guidelines, and it is likely that other institutional investors are also relying on similar approaches to inform their voting decisions.
The memo suggests that companies that don’t already might want to start proactively supplementing the required PvP disclosures with realizable pay.
As proxy advisors begin to supplement traditional models with outcome‑based tests and large institutional investors increasingly rely on proprietary pay‑for‑performance methodologies, boards would be well served to proactively adopt and disclose more robust, outcome‑oriented analyses. Supplementing required PVP disclosure with clear, contextual explanations of CAP and realizable pay and visual demonstrations of alignment with shareholder outcomes can enhance credibility, improve investor understanding, and strengthen the overall pay‑for‑performance narrative.
Managing the process of granting equity awards to employees in the U.S. alone is already a huge compliance effort, but multiply that by 10+ for multinational companies that grant awards to employees around the world — navigating many securities, tax, data privacy, etc., regulatory regimes. If you administer a global equity plan, this McDermott alert is your annual reminder to consider new regulations adopted in applicable countries in 2025. The memo addresses developments in China, the EU, Japan, the Philippines and the UK. It also shares these overall trends:
Income tax and social insurance rates
A number of countries have proposed income tax and social insurance rate and threshold changes for 2026. Similar to the last few years, during which most changes have increased the taxes due, many of these adjustments will increase the applicable tax rates, although there are a few exceptions this year.
Restrictive covenants
In 2025, various countries introduced legislation that curtailed restrictive covenants and limited their use solely to executive-level employees for short durations. We expect to see similar legislation in additional countries in 2026. The trend is based on a concern that these restrictions had become too common and were restricting the mobility of rank-and-file employees.