As Meredith blogged last week, compensation committees that connect the CEO compensation-setting process to the CEO performance review process are able to make and communicate pay decisions with better context. This Semler Brossy memo shares a sample annual review cycle that helps align these two important processes:
– Goal Presentation (March): The CEO presents annual goals to the Compensation Committee for alignment.
– Mid-Year Check-In (July): The CEO delivers a progress update against annual goals.
– Review Preview (October): The Compensation Committee finalizes assessment questions and processes — including target focus areas, a timeline for completion, and the self-review process — and shares a plan for the upcoming review, highlighting key focus areas such as leadership and strategic and financial direction.”
– CEO Self-Assessment (December): This assessment is shared with the full board as context for upcoming performance discussions.
– Active Review (January): Selected Compensation Committee members can divide up board interviews or send all board members an anonymous survey. In both cases, the Compensation Committee will meet to compile themes and key messages. The Compensation Committee refines those themes (sometimes with the help of a compensation consultant) and shares them with the full board for additional input.
– Results and Performance Review (February): The Board Chair and Compensation Committee Chair present the final review to the Compensation Committee and full board. The committee considers results in the context of next year’s pay decisions. Selected board members, such as the Board Chair and Compensation Chair, schedule and share findings with the CEO, then report back to the full board on how the feedback was received and any necessary follow-up. Ideally, the CEO would also use the next meeting to reflect on the feedback and discuss how it will inform the goals for the coming year.
While it is not included in the above calendar, it can be useful to also schedule a follow-up conversation with the CEO after their performance review. Doing so gives them time to reflect on the feedback and ask questions. The board may also consider setting aside time for its own review of the cycle to determine whether any changes for the following year are warranted.
The memo also dives into the pros and cons of various methods for collecting feedback and offers tips for delivering (sometimes difficult) messages in a way that your CEO can accept and positively act on it. Members can access more resources on these topics in our “Compensation Committees” and “Determining How Much Pay is Appropriate” Practice Areas.
For a few years now, we’ve periodically noted that the 2021 American Rescue Plan Act amended the definition of “covered employee” to add a public company’s five highest compensated employees (even if they are not executive officers) for tax years beginning January 1, 2027 and thereafter. January 1, 2027 is now right around the corner!
This Davis Polk alert addresses some frequently asked questions about the expanded definition. For example:
Q: Will the five highest compensated employees for 2027 be identified based on 2026 or 2027 compensation? This question has not been expressly addressed. Using 2026 compensation would allow companies to identify their five highest compensated employees at the start of 2027. However, because ARPA states, “in the case of taxable years beginning after December 31, 2026, such employee is among the 5 highest compensated employees for the taxable year” (emphasis added), the determination will likely be based on 2027 compensation. If so, companies may not be able to identify these employees until after the end of their 2027 taxable year.
It also suggests some steps that companies may want to take to prepare:
– Review their employee populations to make a preliminary assessment as to who may be their covered employees beginning in 2027,
– Confirm that their systems for tracking compensation are sufficient for this purpose, and
– Consider whether to accelerate any compensation that would otherwise be paid in 2027 into 2026, if it is likely to be disallowed as a tax deduction for 2027.
Most boards have a process for evaluating CEO performance, and most compensation committees have a process for determining CEO pay. Too often, however, those processes operate more independently than they should.
These are the opening lines of this Pearl Meyer alert discussing how to connect CEO performance evaluations to compensation decisions. It says the evaluation and compensation processes should be distinct, but connected, and shares some tips.
One useful practice is to complete the CEO performance evaluation before reaching conclusions on compensation. Doing so helps the board develop a view of performance on its own merits rather than working backward from a particular pay outcome. The compensation committee can then consider what, if any, implications the evaluation should have for compensation.
The process should begin at the start of the performance cycle, when the board and CEO agree on the CEO’s priorities and expectations. Objectives should reflect the company’s strategy and include both quantitative and qualitative measures [. . .] Documenting those expectations helps avoid a common problem: introducing new performance considerations at year-end that were never clearly communicated to the CEO.
In terms of implications for pay, the outcome of the evaluation may provide good context for where the CEO’s pay should be positioned relative to market, and the compensation committee may choose to reflect the evaluation in one or more ways:
– Annual incentive outcomes, particularly where the plan incorporates individual or strategic performance.
– Salary adjustments, although these are generally a relatively small component of CEO compensation.
– Future long-term incentive opportunities, where sustained leadership performance or strategic progress may inform grant sizing.
– Special recognition or retention decisions, particularly during periods of significant transformation or unusual leadership demands.
– The evaluation may also lead the board to conclude that no compensation adjustment is appropriate. Not every aspect of CEO performance needs to result in an incremental pay action.
Yesterday, ISS announced that for companies with annual meetings between February 1, 2027 and September 15, 2027, its peer group review & submission window will open at 9:00 AM ET on Monday, November 9, 2026, and will close at 8:00 PM ET on Friday, November 20, 2026. 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 (so for your 2027 annual meeting, this would mean peers used for the 2026 fiscal year).
Here’s a reminder from the press release:
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.
This Glass Lewis blog discusses one-time CEO awards at major U.S. banks in 2025 and assesses their impact on pay levels and peer benchmarking. It reports:
During fiscal year 2025, several large U.S. banks granted significant one-time awards (OTA) to their CEOs, primarily for retention, leadership continuity and transaction-related considerations. The awards contributed to a substantial increase in average CEO compensation among the 19 S&P 500 banks reviewed, while median compensation remained relatively stable.
[T]he aggregate value for grants across the sector [rose] from a little over $100 million in FY 2023 to above $430 million in FY 2025, representing an approximate 311% increase.
[J]ust five of the twelve banks that granted one-time awards in FY 2025 [accounted] for nearly 87% (approximately $379 million) of the aggregate recorded value across the sector.
The blog says that it’s common for average pay to exceed median because of a few large packages, but in 2025 the gap between the average and median became especially wide: “the average rose approximately 86% from the prior year, while the median was essentially unchanged.” Glass Lewis shares its concerns about the impact on benchmarking:
This has a practical benchmarking implication. If a company relies on the average of a peer group or cites the average as evidence that its CEO’s pay package is below market, a few OTA-inflated pay outcomes can create an artificially high reference point. Indeed, the FY 2025 average reflected several exceptional compensation outcomes and was therefore less representative of the compensation reported by a typical company in the sample.
The blog illustrates this benchmarking implication with an example.
[One] company disclosed that 80% of its principal peers had granted special CEO awards during the preceding four years and that the average award value was approximately $60.65 million. [The company] then approved an award with an approved value of $60 million. That does not mean the approved value was selected mechanically, but the near match is difficult to ignore. A practice initially presented as exceptional can start to look ordinary once enough peers have adopted it.
It goes on to highlight five awards and explains that the company in the group with the highest say-on-pay support (83%) granted an award with unique features (tied to a transaction and integration) compared to the others (retention-focused, with 70% support or less). It also points out that one-time awards are up outside the banking sector as well and that there hasn’t been an overall decline in say-on-pay support. Say-on-pay challenges are more likely “when award values are exceptionally large, the evidence of an immediate retention threat is limited, or the award lacks objective performance conditions.”
On this blog, we spend a lot of time discussing executive pay, but as our readers well know, a company’s broader employee population is often eligible for awards under the equity plan, and those awards can be deployed in a variety of ways. This Cooley memo discusses where “equity refresh grants” fit in that strategy – noting that they can be an important tool for boosting employee morale and supporting a company’s long-term performance.
The memo discusses strategies, design structures and timing, calculating refresh award values, and communicating with employees. Here’s what it says about forms of equity:
Refresh grants can take various forms depending on the type of company and its equity compensation strategy. Stock options, including both incentive stock options and nonqualified stock options, remain a common form of equity used for refresh grants, particularly at earlier and mid-stage private companies. Restricted stock units (RSUs) are increasingly popular among late-stage private companies, typically companies with a valuation at or above $1 billion. Some companies also use performance-based equity or other structures depending on their specific circumstances and objectives. The choice of equity vehicle for refresh grants often mirrors the type used for initial grants, though companies may adjust their approach as they mature or as market practices evolve.
The memo points out that equity refresh grants carry important tax and legal implications that both employers and employees should understand. On the securities and compliance front, it says:
[C]ompanies must ensure that refresh grants comply with the terms of their equity incentive plans, including any limits on the number of shares available for issuance. Securities law considerations, including registration requirements and exemptions, also apply to refresh grants just as they do to initial equity awards.
Keep in mind that when it comes to public company say-on-pay votes and executive pay, investors sometimes frown on retention awards. As discussed at our Executive Compensation Conference a couple weeks ago, there are factors that can mitigate that risks – and in some cases, the risks are also outweighed by the benefits.
I am already feeling nostalgic about our recent conferences in Orlando – especially after enjoying Meredith’s blog with photo highlights. I have also already consulted my notes a few times and have been eager to refresh my memory on all of the insights that our speakers shared. So, good news! The archives – and transcripts – for the 2026 Proxy Disclosure & 23rd Annual Executive Compensation Conferences are now available!
If you registered for the conferences through our sites, you can access the video archives and transcripts via the access links on the 2026 Conference Archives page. Members of TheCorporateCounsel.net, CompensationStandards.com, Section16.com and DealLawyers.com who registered for the conferences can use their existing logins to access the Proxy Disclosure Archives and the Executive Compensation Archives.
If you are not a member, do not know your password, or are experiencing issues accessing the 2026 Conference archives, please reach out to our Member Services team by calling 800-737-1271 or send an email to info@ccrcorp.com.
Thank you again to all of our sponsors, speakers, hardworking CCRcorp team, and everyone who attended! Each of you made this year’s events extra magical.
This memo from Compensation Advisory Partners analyzed payouts from long-term performance plans over a 10-year period for 100 large U.S. public companies across 11 industries. The goal was to assess payout patterns across market cycles, understand the impact that relative total shareholder return (TSR) metrics have on payout patterns, and give management teams and compensation committees a “rule of thumb” for evaluating the degree of stretch in long-term performance goals. Here are the three key takeaways:
1. Based on our analysis of long-term incentive payouts over a 10-year period, the degree of difficulty, or “stretch” embedded in long-term performance goals translates to a 95% chance of achieving at least Threshold performance, a 70% chance of achieving at least Target performance, and a 20% chance of achieving Maximum performance, suggesting performance goals balance achievability at Threshold and Target with significant “stretch” at Maximum.
2. Funding on relative TSR metrics tends to be more evenly distributed while funding on financial metrics tends to skew toward target and above. This reflects the different roles the metrics play with financial metrics having clearer line-of-sight for plan participants and relative TSR being more of an outcome metric tied to the shareholder experience.
3. Long-term performance plans have generally been effective at aligning pay and performance as the top performers in each cycle consistently paid above target at a higher rate than the broader sample.
We’ve posted this analysis along with other resources for compensation committees and advisors in our “LTIPs” Practice Area.
As Meredith blogged late last week on TheCorporateCounsel.net, ISS has announced its proposed benchmark policy updates for 2027 and opened the corresponding comment period. The comment period will run through 5 p.m. ET on November 4th – and ISS is seeking input from investors, companies, and other market participants on its proposed voting policy changes for the 2027 proxy season.
There’s just one proposed compensation-related update applicable to the U.S. market:
Option Valuation Model: For equity plan evaluations and the EPSC, removes references to ISS’ binomial option pricing model, replacing it with Black-Scholes as the methodology to be used for ISS’ valuation of options to calculate Shareholder Value Transfer (SVT) from 2027.
ISS notes:
This policy update removes references to ISS’ binomial option pricing model, which is being retired. Beginning with Feb. 1, 2027, meetings, the methodology for ISS’ valuation of options for purposes of Shareholder Value Transfer (SVT), which is utilized as part of the equity plan cost analysis in the Equity Plan Scorecard framework as well as for certain other situations requiring option cost estimations including option exchanges, will be updated to Black-Scholes methodology. This will align the option valuation methodology for SVT and other proposals to the option valuation methodology already used for CEO and NEO option valuations used in ISS’ pay-for-performance, burn rate and realizable pay policies (as detailed in the US Executive Compensation Policies FAQ document).
As Meredith noted, the proposed updates applicable to the U.S. market seem pretty light compared to some prior years, and notably, quite a few topics addressed in ISS’s recent survey are not reflected in the proposed policy changes. That’s not particularly surprising for some survey questions that asked a “what if,” assuming pending SEC proposals are finalized as proposed.
ISS expects to release its 2027 benchmark voting policies, which will be effective for shareholder meetings occurring on or after February 1, 2027, in late November or early December.
We’re entering the “off-season” shareholder engagement window for calendar-year companies. This Compensia alert notes that you may receive more candid feedback during your engagement meetings this year due to three Corporation Finance Interpretations (CFIs) that the Corp Fin Staff issued in September of this year, which we covered on TheCorporateCounsel.net.
In September 2026, the SEC’s Division of Corporation Finance issued three new Corporation Finance Interpretations (“CFIs”) clarifying when a shareholder seeking to report beneficial ownership on Schedule 13G (used by “passive investors” not seeking to influence control) can engage with an issuer without losing their 13G eligibility.
The CFIs mitigate the uncertainty arising from the SEC’s February 2025 guidance on the same topic. Institutional investors may participate in off-season engagements, including discussions regarding executive compensation, without undue concern that such engagement will compromise their eligibility to report on Schedule 13G.
The memo also notes that direct, specific feedback matters more than ever as asset managers’ voting decisions increasingly diverge from the major proxy advisors’ recommendations. Teeing up questions may set you up for success.
The new CFIs underscore that the context of an engagement matters when determining whether a shareholder holds issuer securities with a disqualifying purpose or effect of influencing “control” of the issuer. While the determination ultimately depends on all relevant facts and circumstances, the CFIs give issuers and shareholders a clearer sense of when engagements can take place without jeopardizing a shareholder’s Schedule 13G eligibility.
One important factor is the initiation of the engagement:
If an issuer initiates a meeting to understand a Schedule 13G investor’s views or voting decisions on past matters or on matters likely to be submitted for a vote at an upcoming shareholder meeting, the shareholder’s participation in that discussion does not, on its own, disqualify it from reporting on Schedule 13G. Most notably, the SEC Staff indicates that an issuer-initiated conversation, or a response to an issuer’s request to understand a past vote, is less likely to reflect an attempt by the investor to influence control.
Finally, check out this blog from a few weeks ago for specific suggestions on making the most of your off-season engagement.