This HLS blog post by Diligent Market Intelligence titled “Are CEO Pay Plans Too Samey?” inspired me to pick back up on one of the key themes of the SEC’s roundtable on executive compensation disclosure requirements — the homogenization of pay. CAP’s Matt Vnuk suggests in the blog: “Companies use standard designs to reduce criticism, which leads to better ‘say on pay’ results” though they may be better served to have more “tailored” designs.
This topic initially came up during the first panel at the roundtable when discussing whether proxy advisor policies influence executive compensation decision-making and whether the executive compensation disclosure requirements impact how investors and proxy advisors view pay packages. Some panelists at the roundtable — and the blog — touched on a number of ways that executive compensation design has become a bit “wash, rinse, repeat”:
– The use of modest base salaries, cash bonuses tied to financial metrics and the majority of compensation delivered in equity
– The widespread use of performance share awards
– The limited use of simple stock structures with long-term holding requirements
– The move away from stock options
– The widespread use of relative TSR as a performance metric
– The use of formulaic plans instead of discretionary
– Avoiding practices considered problematic or egregious by proxy advisors and investors
Issuer and investor participants seemed to agree that the move towards homogenized, super complex pay plans is not ideal, but no one was suggesting that today’s standard design be cast back into the volcanic fires of Mount Doom. Issuer participants stressed that having the flexibility to simplify equity programs would be welcome, but that a 180-degree change in the other direction, so that compensation committees do not feel that they have the option to use performance share units when appropriate, would also present challenges.
I can’t speak for the investor perspective, but I assume that some compensation-related “rules of thumb” are somewhat necessary to digest the sheer number of say-on-pay proposals that many asset managers vote on in a short few months of the year — given their diversified holdings and how compressed annual meeting season is in the US. A number of participants representing the issuer perspective endorsed a move toward more principles-based disclosure requirements — combined with tabular disclosures that more clearly convey target and realized compensation — that perhaps could improve the effectiveness of disclosures for investors where plan designs differ from the norm.
Liz recently shared some high-level themes from the comment letters that have been rolling in before and after the SEC’s roundtable on the executive compensation disclosure rules. Those comment letters focus primarily on the requirements of Item 402 of Regulation S-K. That makes sense because that’s what the SEC’s retrospective review appears to be focused on, based on the questions included in the statement by Chairman Atkins that was released with the announcement of the roundtable. But some commentators took this unique opportunity to use their letters to share thoughts on other existing rules relating to executive compensation.
For example, letters from Davis Polk, Cooley and A&O Shearman encourage the Commission to revive efforts it began with the 2018 concept release to modernize Rule 701 and Form S-8, reiterate support for certain measures reflected in the 2020 proposed rules and make suggestions for additional changes. These comment letters suggest, for example:
– Harmonizing the scope of eligible persons under Rule 701 and Form S-8
– Extending eligibility under Rule 701 and Form S-8 for consultants and advisors, specified post-termination grants to former employees, former employees of acquired entities and “platform workers”
– Clarifying the ability to add multiple plans to a single Form S-8 and allocate securities among multiple incentive plans on a single Form S-8
– Permitting use of a post-effective amendment to add shares on a Form S-8
– Modifying Rule 701 disclosure requirements
– Aligning the treatment of RSUs with the treatment of options so that the “date of sale” for RSUs is deemed to be the date of vesting or later settlement (and/or delaying required disclosures to new hires to be within 14 days following their hire)
– Extending the Rule 701 exemption to reporting companies
– Simplifying registration on Form S-8 for securities offered under 401(k) plans
Davis Polk’s letter also tackles related person transaction reporting under Item 404 of Regulation S-K, current report disclosures under Item 5.02 of Form 8-K and exhibit filing requirements under Item 601 of Regulation S-K.
Part 1 of Sullivan & Cromwell’s annual Proxy Season Review shares some helpful details on the nature and outcome of compensation-related shareholder proposals in the 2025 proxy season, noting that they “continue to be difficult to exclude and unlikely to be withdrawn.”
Consistent with H1 2024, over 75% of all compensation submissions reached a vote, the highest proportion across all categories.
As Liz has shared, support is up, but the story isn’t super clear-cut — partly due to the opposing forces of “traditional” proposals versus “anti-ESG” and significant changes this year in proposals related to ESG-linked performance measures.
No proposals passed. Overall, average shareholder support increased slightly from 14% to 17%.
Not counting proposals from “anti-ESG” proponents, which averaged 1% shareholder support and constituted 14% of proposals in this category (vs. 5% in H1 2024), support for compensation proposals increased significantly (from 15% in H1 2024 to 29% in H1 2025).
Last year, we saw for the first time proposals from “anti-ESG” proponents to rescind or reevaluate ESG-linked incentives. There were three such proposals in H1 2024, and the focus was on GHG emissions.
This year, “anti-ESG” proponents were responsible for all ESG-linked compensation proposals. The proposals focused on narrowing or eliminating DEI goals in executive pay incentives . . . These proposals averaged 2% votes cast, consistent with overall shareholder support for proposals from “anti-ESG” proponents.
Voting outcomes for clawback-related proposals also moved against the general trend of increasing support for compensation-related shareholder proposals.
Following the SEC’s adoption of its mandatory clawback rule in October 2022, we saw a sharp increase in clawback proposals last proxy season. Generally, these proposals demanded that companies go beyond mandatory clawback requirements in their corporate clawback policies . . .
This proxy season, the number of submitted clawback proposals remained fairly level with H1 2024 . . . These proposals achieved significantly lower shareholder support (averaging 7% of votes cast vs. 17% in H1 2024). Similar to last proxy season, none passed.
I’m looking forward to a deep dive on the interesting 2025 shareholder proposal season at our October “Proxy Disclosure & 22nd Annual Executive Compensation Conferences.” Join us in Las Vegas on October 21st & 22nd – right before NASPP’s annual conference in the same location – or virtually, if you can’t attend in person, so you don’t miss any of our practical agenda. Sign up online or reach out to our team at info@ccrcorp.com or 1.800.737.1271.
WTW evaluated S&P 500 proxy statement disclosures related to CEO security spend in 2025, comparing data to prior years. Not surprisingly, the report cites increased prevalence, but a decrease in median value. The “relatively low costs” of these programs cited below may largely be due to the time of year they were implemented, so this data may change significantly once 2025 spending is reported.
The median value of security services for CEOs in 2024 was approximately $80,000, down from approximately $94,000 in 2023. The rise in prevalence but drop in median value in 2024 likely were related, as there was an influx of newly established programs with relatively low costs by end of year. Among 25 companies that reported they had established security services for the CEO in the past year and disclosed an associated value; the median was just $54,630.
Spend varied greatly depending on company size and CEO profile.
Unsurprisingly, corporations with the largest revenue were most likely to report security benefits. Nearly two-thirds (64%) of S&P 500 companies with revenue of more than $30 billion provided their CEO with security services (up from 53% in 2023). Conversely, just 16% of companies with less than $6 billion in revenue did the same, up from only 9% in the prior year.
Also, sectors with a concentration of high-profile CEOs are more likely to provide security services. Sixty percent of S&P 500 communication-sector CEOs received security services — the largest percentage of the group. Healthcare saw the biggest jump in the number of CEOs in our study receiving enhanced protection in 2024, with 40% receiving services (up from 25% in 2023). Similarly, the IT sector grew from 30% to 42%, with both the communication and IT sectors reporting median values of more than $100,000 in 2024.
Types of security services included:
– Physical or general protection – Transportation-related services (e.g., car and driver) – Home and residential security (installation and maintenance of equipment & monitoring services) – Cybersecurity or identity theft protection – Personal use of corporate aircraft (reported separately, but often required or encouraged due to secuity concerns)
I blogged last year that it was way too early to write off performance awards, despite gripes from some that they’re overly complex and can result in outsized and/or misaligned payouts.
ISS is asking about the topic again in this year’s benchmark policy survey – specifically, whether respondents’ organizations consider time-based equity acceptable for all or part of executive long-term incentive awards. To me, that wording doesn’t seem to presume a tidal wave of time-based awards, but at any rate, since tomorrow is the response deadline, we’ll likely get to see within a month or two whether investors are open to not penalizing companies who use time-based awards.
In the meantime, Pay Governance worked with IR Impact to survey 100+ institutional investors and public pension funds about their views on performance stock units – and this memo reveals what they found. Here are a few takeaways:
– 49% all investors indicated they were satisfied / very satisfied with the CEO pay alignment at their portfolio companies.
– 26% were dissatisfied or very dissatisfied.
– As shown in Exhibit 2, the results of our survey largely support the preference for PSUs in contrast to time-based stock awards (RSUs) with longer vesting schedules than typical: 71% preferred PSUs that would be earned/vested over a multi-year period or PSUs in concert with a balance of time-based RSUs.
– 51% would rather have issuers award mostly or 100% PSUs, while 86% desire that PSUs comprise at least 50% of total LTI value.
– Importantly, from most executives’ point of view, the upside payout of the number of PSUs (150-200% of target) is extremely compelling and motivational relative to RSUs that do not have that type of upside.
– Investor opinions are split on whether standard stock options with time-vesting are considered performance-based (52%) or time-based (48%).
Pay Governance urges companies not to rush into changing their plan design based on anecdotal criticisms of performance-based awards, as investors seem to remain pretty supportive of how PSUs are being used. Pay Governance predicts that most companies will continue with their overall approach to performance-based pay.
Meredith recently shared stats from BlackRock’s 2024 Investment Stewardship Report over on our Proxy Season Blog on TheCorporateCounsel.net. BlackRock published the 104-page report – and this 25-page summary – earlier this year. Here are a few takeaways on the asset manager’s compensation-related engagements and voting decisions:
– BIS may engage with companies where additional clarity would be helpful to understand how their compensation policies reward executives for accomplishments in the short-term and incentivize the delivery of long-term financial performance. In 2024, BIS held 1,272 engagements with 1,083 companies on incentives aligned with financial value creation.
– When analyzing a company’s disclosures, BIS seeks to determine whether the board’s approach to executive compensation is rigorous and reasonable, in light of the company’s stated long-term corporate strategy and specific circumstances, as well as local market and policy developments.
– Globally, BIS did not support the election of 1,109 directors at 648 companies due to executive compensation concerns in 2024. BIS may vote against members of the compensation committee or other directors if it perceives misalignment between pay and performance.
– Globally, BIS supported ~82% – or 15,858 out of 19,232 – of compensation-related management proposals put to a shareholder vote in 2024. Compensation-related proposals include Say on Pay proposals, remuneration policy proposals, proposals to approve new or revised incentive plans, and other compensation-related proposals. BIS supported ~82% of management proposals to approve Say on Pay and related grant approval proposals put to a shareholder vote in 2024
– Support was largely driven by many companies’ enhanced disclosures and a clearer articulation of how their policies align with shareholders’ long term financial interests. In general, companies improved their explanations of how short-and long-term incentive plans complement one another and are effective in rewarding executives who deliver long-term financial value.
– While BIS supported a greater proportion of Say on Pay proposals in 2024 compared to 2023, it continued to vote against programs that included large outside-of-program awards that lacked a compelling rationale, lacked sufficient linkages between compensation and financial returns to shareholders, or did not clearly connect compensation program design and corporate strategy. BIS noted that fewer companies made one-time adjustments to their pay programs in 2024.
The report includes case studies beginning on page 69 and also directs companies to this January 2025 bulletin on BlackRock’s approach to engagement on executive compensation.
Keep in mind that the lag time with these reports means that we don’t know the investors’ prior-year voting rationales or engagement case studies until after proxy season has passed – but they can still be helpful heading into this year’s off-season engagements. And we’ll soon also have the hard data on votes, which will give further insight into this year’s decisions.
It’s been almost 2 months since the SEC held its roundtable on executive compensation disclosure rules. I had highlighted a few comment letters in advance of the event – but of course, many more have arrived since then. The grand total as of yesterday was 1,105!
Out of those, there are about 60 unique letters in the mailbag. Similar to remarks at the roundtable, many of them acknowledge that executive compensation disclosures have become unwieldly. The letters vary in proposed solutions, though. Here are a few high-level themes that companies will like:
What about the other 1,000+ letters? Well, for the Staff tasked with reading everything, it may be good news that they’re substantially identical. Here’s more detail:
– 1,025 people have submitted this brief letter – which advocates for expanded disclosure rules, and expressly supports CEO pay ratio disclosures and clawback requirements.
– This letter submitted by 19 retail investors focuses more on perks – but also calls out pay ratio disclosure as material information.
For both, the pay ratio piece is somewhat surprising since that disclosure seems to have settled into predictable industry-based bands. Glass Lewis asked institutional investors in this year’s policy survey whether they care about this topic, so it will be interesting to see those results!
On the institutional investor front, this letter from the Council of Institutional Investors supports comprehensive disclosure, and – as you might expect – closing “non-GAAP loopholes” for compensation disclosures.
We will undoubtedly be discussing the future of executive compensation disclosure at our October “Proxy Disclosure & 22nd Annual Executive Compensation Conferences.” With several of our speakers also participating in the SEC’s roundtable and various comment letter endeavors, we will be ready to share the very latest updates – as well as practical tips for the 2026 proxy season. Join us in Las Vegas on October 21st & 22nd – right before NASPP’s annual conference in the same location – or virtually, if you can’t attend in person, so you don’t miss any of our practical agenda. Sign up online or reach out to our team at info@ccrcorp.com or 1.800.737.1271.
Over half of S&P 500 companies use relative total shareholder return in their long-term incentive plans – but this Compensation Advisory Partners memo points out that rTSR’s simplicity can be deceptive, so the way your company is using this metric could require a second look. Here’s an excerpt:
The first decision is whether to use rTSR as a primary weighted metric or as a modifier to other financial results.
Most companies give rTSR a prominent role, with 68% using it as a weighted metric, meaning it directly determines a portion of the PSU payout. While 50% is the most common weighting (38% of companies), practices diverge sharply on either side. About one-third lean heavily on rTSR, with 22% weighting it at the full 100%. At the other end, 29% set it below 50% — and only a small minority, 13%, drop below 33%, most often at 25%.
When rTSR is a weighted metric, nearly nine in ten companies measure performance as a percentile rank within their comparator group. The median payout scale begins at the 25th percentile for threshold, reaches the 50th percentile for target, and tops out at the 80th percentile for maximum payout. While the traditional 25th / 50th / 75th percentile performance goal scale remains the single most common approach (31%), it is no longer majority practice, as more rigorous maximum goals have become increasingly common.
The memo goes on to describe other variations of using rTSR as a weighted metric, and how this differs from a modifier approach – which is used by 32% of applicable S&P 500 companies. The memo says that weighted metrics make rTSR a central driver of payouts – whereas a modifier reinforces financial or strategic goals – so companies should think about their overall compensation philosophy when choosing an approach.
The memo also discusses the next major decision point for rTSR metrics – the comparator group. Here’s an excerpt about that:
The trade-off is clear: indices are transparent and objective but may be less relevant for companies in niche sectors, while custom peer groups can provide a sharper performance comparison and the ability to control the sample size but require more judgment and justification in their selection.
CAP cautions companies using sector indexes to carefully consider the constituents included, as they may be reclassified over time.
These issues with rTSR aren’t new – Meredith blogged about potential improvements to tech industry incentive plans a few months ago, and I swiped today’s headline from a blog that Broc wrote back in 2018! But if it’s been a while since your compensation committee considered how rTSR is used, it may be time to revisit the discussion. Members can visit our “Determining How Much Pay is Appropriate” Practice Area for more resources on design issues and trends.
This HLS Blog post from DragonGC summarizes the results of their recent analysis of engagements conducted and disclosed by 24 Fortune 1000 companies that had sub-optimal say-on-pay outcomes in 2024. They found that engagement centered on:
Changes in practices
– Changes in board oversight
– Change in peer group
– Changes to performance metrics
– Eliminate use of one-time awards
Refining targets
– Stretch targets
– Longer measurement period
– Use TSR modifier
– Caps on CEO
– Caps on perquisites
Say-on-pay improvements in 2025 following these engagement disclosures ranged widely — from 5% to 67%. The blog lists specific companies that addressed these issues and links to the relevant disclosure in their proxy statements, if you’re looking for samples.
As I noted in late July, Glass Lewis is now out with its annual policy survey. Responses are due September 15 by 8 pm ET. This Weil alert details key topics covered in the survey. Here are the compensation-related matters:
Time-Based Awards. Citing the preference of over 85% of respondents to last year’s survey for performance-based incentive awards with an openness to time-based awards under certain circumstances, and noting ongoing debate regarding a company’s mix of time- and performance- based awards (as discussed at the SEC Roundtable on Executive Compensation on June 26, 2025, see our prior Alert here), Glass Lewis asks respondents under what specific circumstances they would consider use of only time-based awards under a long-term incentive plan to be reasonable.
Director Pay. Glass Lewis notes that, in developed markets, set fees generally account for the majority of non-executive director compensation and that such fees are generally modestly increased over time without controversy or intense scrutiny. Noting the understanding that substantial increases in non-executive director pay occur infrequently, Glass Lewis asks how respondents assess such significant increases in director fees.
Executive Security and Perks. Understanding company concerns that the current SEC guidance on perquisites may be confusing and may dissuade companies from providing security protections, Glass Lewis asks whether, and under what circumstances, respondents believe executive security costs should be treated as perquisites.
Make-Whole Incentive Grants. Noting the increase in the number of “make-whole” grants disclosed in connection with executive hires in 2025 and the disparate responses to last year’s survey question on the topic, Glass Lewis asks respondents to provide greater detail on their evaluation of make-whole awards, as opposed to other signon awards, including whether they should be assessed on the same criteria as other awards.
Equity Plans. Glass Lewis notes that when shareholders do not approve a company’s equity plan, it can significantly impact a company’s ability to pay its employees. With such high stakes in mind, Glass Lewis requests that respondents provide greater detail on what characteristics they consider important in evaluating omnibus equity plans, including qualitative terms and best practices, absolute or relative burn rate, or overhang and dilution levels, dilutive impact of the share request, size of the share request compared to past usage and current need, and historical and projected cost of the plan.
SEC Rulemaking. Noting that the SEC may scale back executive compensation disclosure, Glass Lewis asks what disclosure elements respondents consider to be crucial in communicating and assessing executive compensation programs. Specifically, Glass Lewis asks respondents to indicate whether the following are “very important,” “important,” or “not important”: incentive plan design; rationale for potentially concerning pay practices; reconciliation between GAAP and non-GAAP metrics used in incentive plans; standard compensation tables; SEC-mandated pay-versus-performance disclosure; and CEO to median employee pay ratio.
Tariffs. Glass Lewis asks how respondents would typically expect the board to respond when executive incentive outcomes reflect elements of a company’s performance that have been materially impacted by tariffs.
Severance Benefits. Glass Lewis notes that companies may often make ad-hoc adjustments to employment and award agreements to expand severance benefits. As such, Glass Lewis asks which ad-hoc adjustments respondents believe are acceptable.
Like the ISS survey, it also cites the SEC’s February Schedule 13G eligibility guidance. Glass Lewis asks survey respondents whether they are considering voting or engagement policy changes in response.