As this FW Cook memo explains, sometimes there are good reasons for boards to approve special awards. But the fact remains: Investors don’t like them. The memo points out that some companies are able to recover quickly from investor concerns associated with these awards, while others suffer fallout for years. Here’s an excerpt:
The difference tends to come down to a combination of factors: underlying company performance, the quality of engagement with key shareholders, demonstrated responsiveness to the concerns raised, as well as the overall design and disclosure of the award itself. There is no single formula that guarantees a smooth recovery, and boards that approach the aftermath as a routine engagement exercise sometimes find it is anything but.
The memo walks through factors that tend to contribute to a quick recovery. Not surprisingly, a lot of it comes down to thinking ahead. Here’s an excerpt:
Boards that navigate this well also tend to think ahead — specifically, about what the story looks like if circumstances don’t resolve cleanly. When the board does not yet have a viable successor in place, a retention grant has a straightforward logic at the time of grant. The board needed time, and the award bought it. That story is easier to tell if a transition happens eighteen months later. It gets harder if two or three proxy seasons pass, the CEO is still in place, succession is still unresolved, and shareholders are left wondering what the award actually accomplished beyond extending the status quo. The question worth asking in advance is not whether the rationale works today — it usually does — but how it ages if the underlying situation moves slowly or not at all.
Related to that is a consideration that often gets underestimated: what the grant closes off. No board grants a special award knowing exactly what the next two or three years will bring. Business circumstances shift, and some of those shifts — an acquisition, an unexpected performance shortfall, a leadership change — may call for compensation responses that are themselves outside the ordinary. When that happens, a board that has recently granted a special award faces a harder conversation. Shareholders have limited appetite for repeated departures from normal practice, even when each one is justified on its own. The cost of a special award is not only the grant itself — it is the flexibility it may take away from the board later, when a more consequential decision requires shareholder patience.
We tend to cover CEO succession planning less on this site and more on TheCorporateCounsel.net, as a full board governance issue – in fact, we have a full “CEO Succession Planning” Practice Area over there. But this Pay Governance memo is interesting in that it highlights the greater role that some compensation committees are playing in this key responsibility. Here are the key takeaways:
• Succession planning has become a core responsibility of compensation committees, as boards increasingly oversee broader human capital matters amid persistent market volatility, deeper regulatory scrutiny, and rapid industry change.
• CEO succession among Russell 3000 banks reflects a predominantly planful talent pipeline, with approximately two thirds of CEOs hired from COO or President roles – positions often intentionally structured as stepping-stones to the top job.
• External hiring serves as a targeted complement to internal succession planning, often through former CEOs or M&A related appointments, reflecting a flexible approach to selectively augment internal pipelines with high potential external talent where strategically appropriate.
• Boards and compensation committees across industries should consider the approaches – such as succession planning cadence, incentive design for “CEO-in-Waiting” roles, and targeted development investments in COOs/Presidents and other executive pipelines – that encourage greater proactivity, streamline succession processes, and strengthen long-term leadership outcomes.
• Compensation committees can deploy a suite of succession linked pay tools – including pre CEO retention RSUs, pre approved compensation step ups, and promotion awards – to support continuity, reduce flight risk, introduce pay certainty ahead of transition, and reset long term incentives in a manner that aligns incoming CEOs with enterprise wide accountability.
We’ve posted the agendas and speakers for our pair of popular fall conferences – The 2026 Proxy Disclosure & 23rd Annual Executive Compensation Conferences – which are coming up on October 12th and 13th virtually and in person in Orlando!
With a “blockbuster” year in the works for Corp Fin – alongside many other developments affecting executive compensation, corporate governance, and disclosures – you do not want to miss these two informative days. Here’s a sampling of what’s on tap – check out the full agenda for all the details!
– Christina Thomas: The Latest From Corp Fin
– The SEC All-Stars: Proxy Season Insights
– The Fate of Shareholder Proposals
– Fireside Chat with Top Activism Defense Lawyers
– Scary Stories!
– Trends in Tokenization & Blockchain
– SRCs, EGCs & FPIs: What’s Next?
– Keeping Governance in Focus When the Future is Hazy
– The SEC All-Stars: Executive Pay Nuggets
– Your Compensation Disclosures: New & Improved (We Hope)!
– The Top Compensation Consultants Speak
– Navigating ISS & Glass Lewis
Our conferences will be a great opportunity to understand how new rules and other evolving developments could affect your company and board – and to talk with fellow practitioners about how they’re adapting and preparing. Register online at our conference page or contact us at info@CCRcorp.com or 1-800-737-1271. Sign up soon to take advantage of the early bird rate!
We’re continuing to monitor how the proxy voting landscape is changing in light of new technologies and more customized voting policies. This Farient Advisors blog takes a closer look at the question, “How will investors’ use of AI affect say-on-pay outcomes?”
The short answer is: Don’t expect a seismic shift in the near-term. But the blog explains that investor practices are already changing in several ways. Investors are:
– Revisiting historical “checklists” related to year-over-year pay changes, absolute pay levels, and one-time awards
– Translating these checklists into customized policies and actions, influencing voting behavior, engagement preparation, and investor priorities
– Analyzing proxy statements, including extracting key information from the CD&A, reinforcing the importance of how companies frame their disclosures
– Conducting custom peer group benchmarking, enabling comparisons beyond traditional company- or proxy advisor-defined peer groups, with implications for both voting and engagement
The Farient team says that proxy advisors are continuing to play a meaningful role in certain aspects of say-on-pay analysis, even as the state of play evolves. Specifically:
– Investors continue to rely on established pay-for-performance (PFP) alignment models while developing their own frameworks
– Proxy advisors retain advantages in covering non-U.S. markets and smaller companies, where operational complexity remains high
In addition to continuing to focus on shareholder engagement and fundamentally well-aligned and well-disclosed pay programs, the blog says that companies can use AI to their advantage too – but don’t take it too far. Here are a couple of parting thoughts:
– Reevaluate peer group strategy: AI tools will enable greater customization in peer group selection, which may diverge from traditional company or proxy advisor frameworks. Companies and their advisors should proactively test a range of peer scenarios and be prepared to address their rationales for the comparisons.
– Elevate the Compensation Committee narrative: When relevant and appropriate, the Compensation Committee Chair letter can carry more weight for investors than in the past by providing the full context around the Committee’s decision-making process, in addition to any anecdotes they hear during an engagement. An annual or periodic letter can be a powerful tool. Don’t treat this as boilerplate or a check-the-box exercise; insight from the Compensation Committee Chair and its members can help contextualize non-routine pay decisions, particularly around special or one-time awards. While AI can be helpful for typo and grammar checks, investors have tools at their disposal that allow them to check for AI-generated content. The pen should remain firmly in the hand of the Committee Chair.
[W]hile the evergreen needs to end after 10 years due to stock exchange shareholder approval rules, there’s no reason to have a 10-year term on your whole equity plan. We’ve had situations where we’re coming up on the 10-year anniversary of when the plan was adopted, and while the evergreen is ending, it has built up the share reserve over the years. You don’t want your plan to expire at that point. You want to still be able to use those shares for as long as you want.
In connection with their IPO, greater than 90% of technology and life sciences companies adopt equity compensation plans that contain an “evergreen” provision. These provisions provide for an automatic increase in the number of shares available for issuance under the plan (with a typical initial share pool of 8% to 12% of outstanding shares and a 4% to 5% annual increase in the technology sector) without requiring additional shareholder approval of the increase.
Consistent with the listing standards of the New York Stock Exchange and the Nasdaq Stock Market, an evergreen provision may have a term of up to ten years. Although not required, many companies that adopted evergreen provisions in connection with their IPO also provided that their equity plan contain a fixed 10-year term that mirrors the term of the evergreen provision. As a result, these companies must ask their shareholders to approve a new equity plan as they near the 10-year anniversary of their IPO.
Typically, by evergreen and plan expiration, most companies are relatively “mature” and widely held by institutional shareholders whose support, absent a multi-class stock structure and/or insider voting control, will be required for the new equity plan.
A 10-year period is also relevant to incentive stock options (ISOs) and the requirements under Internal Revenue Code Section 422. (And possibly certain restricted stock recycling provisions — see Q&A Forum Topics 1159 & 1577.) Even so, your equity incentive plan‘s evergreen and termination provisions might read:
Share Reserve. […] In addition, subject to any adjustments as necessary to implement any Capitalization Adjustments, such aggregate number of shares of Common Stock will automatically increase on January 1 of each year for a period of ten years commencing on January 1, 2026 and ending on (and including) January 1, 2035, in an amount equal to five percent (5%) of the Share Reserve Increase Stock outstanding on December 31 of the preceding year; provided, however, that the Board may act prior to January 1st of a given year to provide that the increase for such year will be a lesser number of shares of Common Stock (each, an “Annual Increase”).
Termination of the Plan. The Board may suspend or terminate the Plan at any time. No Incentive Stock Options may be granted after the tenth anniversary of the earlier of: (i) the Adoption Date, or (ii) the date the Plan is approved by the Company’s stockholders. No Awards may be granted under the Plan while the Plan is suspended or after it is terminated.
Either way, if you find yourself with an expiring evergreen or plan, the Compensia alert has a flow chart for that scenario.
This recent Pay Governance memo shares an observation about how ISS’s say-on-pay recommendations in the 2025 proxy season differed from past trends:
ISS quantitative P4P test results have historically been a reliable predictor of an ISS “against” SOP recommendation. However, in 2025, we observed strong quantitative P4P results for companies receiving opposition from ISS on SOP […] [I]n 2025, 73% of S&P 500 companies that received an “against” SOP recommendation from ISS scored “low” concern on the primary RDA test. In other words, the majority of S&P 500 companies opposed by ISS on SOP demonstrated alignment between CEO pay and TSR relative to ISS-defined peers. Further, nearly half of S&P 500 companies (48%) received an overall “low” concern when incorporating the other quantitative P4P tests.
This suggests that qualitative factors played an outsized role in ISS’s 2025 say-on-pay analyses, so the tip here is not to ignore those even if you expect the quantitative analysis to come out OK.
Among S&P 500 companies receiving ISS SOP opposition in 2025, the top three areas of ISS criticism within its qualitative review were related to the use of non-standard pay elements, such as special awards, high-value security benefits, and severance payments for voluntary separation.
Looking at this proxy season, the memo points to the lengthened timeframes for the primary quantitative analysis effective for the 2026 proxy season. It says that this change may complicate things for some companies, especially those with significant one-time awards.
For companies that demonstrated recent strong P4P alignment, concern levels could be elevated by the longer lookback periods for pay and performance, and vice versa. The extended time period also means that one-time awards will be included in these calculations longer, potentially raising ISS’s concern levels for RDA and MOM.
It’s worth noting that ISS doesn’t expect this shift to drastically change the number of companies that receive an “adverse” recommendation, although it may change which companies receive one. ISS’s Marc Goldstein addressed this briefly during our “ISS Policy Updates and Key Issues for 2026” Webcast on TheCorporateCounsel.net. He shared:
We do not anticipate that the number of adverse recommendations will be materially impacted. This isn’t a way to increase the number of adverse recommendations or decrease it. It will potentially result in different companies receiving adverse recommendations, but the intention isn’t to have a radically different number of adverse recommendations in either direction.
I’ll say it just because it may not be obvious, but the quantitative screen is always just the first step in the analysis. If the concern level is elevated, then we do a deep dive in a qualitative review examining the features of the pay program in detail.
This FW Cook alert shares more on the executive compensation implications of the California law, effective January 1, restricting certain repayments upon separation. The alert says the contract in the hypothetical below would be illegal under the new law if entered into after the effective date — meaning the contract would be void and the employer in this scenario would be subject to injunctive relief, required to pay a fine and liable for attorneys’ fees and costs in an associated lawsuit.
Assume a California company hires a new executive (who works in California) and one of the features of the new employment contract is a large cash payment upon commencement of employment, which payment is subject to repayment if the executive leaves within a certain period of time, for example, a $5 million payment subject to complete repayment if the executive leaves within three years. These cash payments can occur, for example, if the executive is forfeiting awards that he or she might have earned if the executive had stayed with the former employer. Alternatively, a large cash upfront payment may be seen as an advantageous way of enticing the executive to switch jobs because it is a one-time payment, whereas enticing the executive with a large salary increase creates a permanent increase in compensation.
The alert points out that the main concern prompting the statute was TRAPs – Training Repayment Agreement Provisions – but the actual statutory text has implications far beyond those provisions – and possibly even beyond executive compensation arrangements that may require repayment.
As Liz shared, there is a limited exception if the repayment obligation follows the law’s prescriptive requirements, including a proration requirement, and that separation was the employee’s choice or, if the employer’s, due to misconduct.
The forced proration provision [. . .] immediately applies rather than having at least some minimum period of employment that must be met to avoid a complete forfeiture. Limiting the retention period to two years, also required by the third condition, could be problematic to some employers if the initial contract is for more than two years.
The fifth condition may be problematic [. . .] Suppose the executive dies or becomes disabled. It’s far from clear that these are separations “at the sole election of the employee.” Perhaps an executive claims he or she is quitting for good reason because of changes in the conditions of employment. Some cases say major deleterious changes in work conditions constitute a “constructive termination.” Previously, the parties could agree on language clarifying whether and how a “good reason” termination would be analyzed. Now it’s up to the courts.
Finally, the statute defines “misconduct” by a cross-reference to the California Unemployment Insurance Code. As you might expect, there is a high bar that must be cleared before an executive’s behavior will amount to misconduct.
The alert also expresses concern that the statute’s separate prohibition on penalties upon termination of employment could be read so broadly as to restrict something as common as restricted stock with three-year cliff vesting that is forfeited when employment terminates.
In its latest “Portfolios on the Ballot” publication, the Shareholder Commons highlighted Majority Action’s pay equity-focused “vote no” campaigns at 20 companies. Majority Action’s 2026 Inequality-Pay Ratio Vote Guide “recommends voting against say-on-pay proposals at companies with outsized CEO-to-worker pay ratios, arguing that extreme intra-firm inequality can suppress economic growth, weaken productivity, and create system-level risks that ultimately impact long-term portfolio returns.” Specifically:
For S&P 500 companies whose annual general meetings are between April 1, 2026 and June 30, 2026, a say-on-pay no-vote was recommended if:
• Key Indicator 1: The company’s 2024 and 2025 pay ratios exceed 494:1, ranking it in the top decile of pay ratios among all S&P 500 companies OR
• Key Indicator 2: The company’s 2024 and 2025 pay ratio are upper outliers compared relative to other companies in the same sector
Majority Action’s report notes that most investors have “rarely considered” CEO pay ratio in say-on-pay deliberations, which have largely focused on pay structure.That said, it calls out UK asset manager L&G as a notable exception, since it votes against S&P 500 say-on-pay when the disclosed CEO pay ratio exceeds 300:1 and three-year TSR underperforms the rest of the index.
Here’s something that Meredith shared last week on the Proxy Season Blog over on TheCorporateCounsel.net:
I love to see data on topics like this. The makeup of a named executive officer (NEO) group says a lot about a company. While that sort of company-specific insight is lost in aggregated data, the information in this HLS blog post (based on a Conference Board report) about how the composition and compensation of the NEOs of the Russell 3000 and S&P 500 have evolved over the last five years offers insight into shifting power dynamics in company leadership and how companies are prioritizing their compensation spend. Here are some key points:
– Beyond the CEO and chief financial officer (CFO), business unit heads are the most prevalent NEO roles—although their prevalence has notably declined since 2021 [. . .] This points to a broader governance shift away from decentralized, division-centric leadership models toward more functionally centralized executive teams, where enterprise-wide leaders overseeing legal, technology, human capital, and commercial strategy increasingly occupy the most senior and highly compensated roles.
– CLOs, chief technology officers (CTOs), chief human resources officers (CHROs), and chief commercial officers (CCOs) are all increasing in prevalence as NEOs — reflecting increased corporate emphasis on enterprise risk, technology, talent, and revenue.
– By contrast, the number of chief marketing officers (CMOs) qualifying as NEOs declined between 2021 and 2025, suggesting that many companies are placing greater weight on commercial, pricing, and revenue leadership than on traditional brand and marketing leadership when determining top-tier executive prominence.
– While mandates such as data, cybersecurity, and sustainability are increasingly strategic priorities, they are not consistently reflected as standalone NEO titles, suggesting these responsibilities are often embedded within broader executive roles.
Also, there’s this good news for lawyers:
– Legal roles (CLOs, general counsel, corporate secretaries, and chief compliance officers) recorded the largest absolute increase of any non-CFO category, rising by 236 disclosures, from 1,154 in 2021 to 1,390 in 2025. This reflects the deeper integration of legal, regulatory, compliance, and enterprise risk considerations into core business strategy. CLOs and equivalent roles are most prevalent in industrials (17%), health care (16%), financials (13%), and consumer discretionary (12%), where regulatory exposure, litigation risk, and government interaction are especially pronounced.
Here’s an interesting analysis from Semler Brossy, looking at 12-year trends in CEO bonus payouts. It shows how dollar values have shifted (more modestly than I expected!) – as well as trends in payouts compared to targets. Here are the key findings:
• Actual bonus payouts to CEOs increased 3% annually, in line with target bonus increases over time.
• Bonus payouts generally tracked with real GDP growth, especially during the COVID period (2020-2021). The payouts are reflected both the broader macroeconomic state (e.g., growth, compression) and how goals were calibrated in response
• During typical cycles, average payouts were usually in the 110% to 120% range, reflecting steady economic growth and consistent goal attainment
• During COVID (2020): payouts shifted closer to 100% of target as companies faced operational uncertainty and economic contraction
• COVID Aftermath (2021): Payouts were heavily concentrated in the above 175% range in 2021, driven by companies down goaling in 2020 and significant economic rebound
• Macroeconomic trends and company-level revenue growth are highly correlated with bonus payouts. It is one of the most commonly used annual incentive metrics and is more comparable across the S&P 500 than other financial and operational measures, which often require greater contextual interpretation
Lastly, when it comes to the impact of big macroeconomic disruptions on bonus payouts, the data appears to show that “this too shall pass”:
• Payout levels tend to compress toward target in downturns (2020) and expand toward maximum in periods of strong growth (2021), reflecting the sensitivity of bonus programs to operating performance. Although outside the scope of this dataset, we have observed similar payout patterns during prior disruptive cycles, including the dot-com downturn and the 2008–2009 financial crisis
• Following periods of disruption, companies typically require time to recalibrate annual performance targets; however, payout levels tend to normalize relatively quickly (2022)