Late last month, I recorded a conversation with Shaun Bisman of Compensation Advisory Partners on ISS and Glass Lewis compensation-related policy updates for the 2025 proxy season. Tune in to this 16-minute episode of The Pay & Proxy Podcast to hear Shaun address:
Executive compensation-related updates to Glass Lewis’s 2025 Voting Policy Guidelines
ISS’s FAQ updates regarding the presentation of realizable pay, evaluation of program metrics and changes to in-process pay programs
ISS’s new FAQ on performance-vesting equity disclosure
Potential changes to ISS’s Benchmark Voting Policies for 2026 relating to the treatment of time-vesting equity awards
Practical implications and action items for compensation committees
As always, if you have a topic you’d like to discuss on a podcast, please reach out to me at mervine@ccrcorp.com!
Back in the 2021, there was a jump in the percentage of companies including individual performance metrics in their annual incentive plans. A number of companies added these metrics during pandemic times in order to provide some flexibility in the midst of uncertainty. A recent analysis from ISS Corporate observes that usage has remained steady ever since – with 34% of companies across the S&P 500 and Russell 3000 using them, compared to 29% in 2020. The memo looks at payouts at these companies compared to companies that do not use individual performance metrics. Here are the key findings:
– Incorporating discretionary components within a company’s Annual Incentive Program has become increasingly common, particularly in the Real Estate and Financial sectors.
– Companies that have individual performance metrics in their Annual Incentive Programs tend to deliver higher payouts and executives are more likely to achieve target than companies that do not.
– Discretionary components in a compensation program generally shift pay more towards the Annual Incentive Program for companies in the Russell 3000, while having the opposite effect for the S&P 500.
– Individual performance metrics may be used as a substitute for discretionary bonuses for S&P 500 companies, but the opposite is true for Russell 3000 companies, where companies with discretionary metrics also award larger discretionary bonuses on average.
Companies may want to prepare to talking points in response to these observations, because the memo offers this advice to investors:
The results also suggest that investors should carefully evaluate programs that lack pre-set quantifiable metrics. While IPMs add needed flexibility to a CEO’s pay package, they can also subtly lead to an increase in short-term pay. Companies with IPMs are more likely to hit their target payout, and short-term payouts may be significantly higher as well. In short, the results suggest an important role for monitoring AIPs with a heavily weighted individual performance metric and it is incumbent on companies to provide adequate disclosure.
Remember that last month, updated ISS FAQs also signaled that companies may face more scrutiny this year around performance metrics and related disclosures, especially for performance-vesting equity when pay & performance aren’t aligned under ISS’s quantitative test.
Tune in at 2:00 pm Eastern tomorrow – Thursday, January 9th – for our annual 90-minute webcast, “The Latest: Your Upcoming Proxy Disclosures.” We’ll hear from Mark Borges of Compensia and CompensationStandards.com, Alan Dye of Hogan Lovells and Section16.net, Dave Lynn of Goodwin Procter and TheCorporateCounsel.net and Ron Mueller of Gibson Dunn on a variety of compensation “hot topics” – including:
– Potential Impact of New Administration on SEC Rulemaking
– Potential Impact on Compensation Disclosure (Pay Ratio, Rule 701 and more)
– Evolution of Clawback Policies, Disclosures to Date and Clawback Mechanics
– Pay vs. Performance — Preparing for the First Year of Five-Year Disclosure
– Proxy Advisor Compensation Policy Updates
– The Key CD&A Topics and Tabular Insights
– New Item 402(x) and Equity Grant Policies
– Incentive Plan and ESG Metric Trends
– Compensation-Related Shareholder Proposals
– Planning for 2025 Say-on-Pay Votes
– Planning for 2025 Equity Plan Proposals
Members of this site are able to attend this critical webcast at no charge. If you’re not yet a member, try a no-risk trial now. 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. The webcast cost for non-members is $595. You can sign up by credit card online. If you need assistance, send us an email at info@ccrcorp.com – or call us at 800.737.1271.
We will apply for CLE credit in all applicable states (with the exception of SC and NE which require advance notice) for this 90-minute webcast. You must submit your state and license number prior to or during the program using this form. 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.
As we kick off a new year, many people are reflecting on their goals and plans for the future. For your CEO, that may include retirement planning. And these days, that transition may come sooner than you expect!
According to a WTW memo that Meredith recently shared, CEOs have been retiring at younger ages in recent years. In addition to the obvious succession planning issues that this creates, there are also a few things that compensation committees can consider in order to optimize equity awards during an executive’s last few working years.
In the latest 10-minute episode of The Pay & Proxy Podcast, Meredith was joined by WTW’s Mike Oclaray and Kate King to discuss this topic. Tune in to hear:
– Statistics from five years of pay history for recently retired S&P 500 CEOs
– Why compensation committees should reconsider LTI strategy as CEOs near retirement
– Assessing existing equity awards to understand treatment on retirement and the value of in-flight awards that may be prorated or truncated
– Potential alternatives to consider in light of an impending retirement, including a larger grant, a change to pay mix or vesting or a special performance award
– A real-world example of improving CEO equity awards to sync with remaining tenure and align the CEO’s interests with those of the organization and shareholders
Check out this LinkedIn post from Aon’s Laura Wanlass for other things to consider around executive transitions. Thinking ahead about contracts and disclosures can help you avoid negative votes at your annual meeting.
In December, BlackRock published its voting guidelines that will apply to 2025 annual meetings – including updates to its guidelines for U.S. securities as well as its “Global Principles.”
BlackRock made only incremental updates to the policies that relate to executive compensation – and some changes may be articulating factors that the investment stewardship team was already applying in practice to its voting decisions. Nevertheless, if BlackRock holds significant voting power at your company, you may want to do the following:
– Check how your disclosures (and compensation committee discussions) stack up against BlackRock’s updated expectations.
– Consider submitting your equity plan for approval sooner than you otherwise would have.
– Warn your compensation committee members about BlackRock’s threat to vote against them for two new reasons: “imprudent use” of equity awards and option repricings.
Diving into the guidelines, here are the highlights for the compensation-related changes:
– Focus on financial value: When it comes to linking pay to performance, BlackRock now specifies that it means “financial” value creation.
– Your rationale for compensation decisions: New language encourages companies to clearly explain how compensation outcomes have rewarded performance (versus basing pay increases solely on peer benchmarking). The policy clarifies that companies should consider rigorous measure(s) of outperformance in addition to peer benchmarking.
– Clawbacks: BlackRock built on its existing policy to say that it expects boards to exercise limited discretion in forgoing, releasing or settling amounts subject to recovery for executives and not to indemnify or insure executives for losses they incur.
– Equity compensation plans: BlackRock added a new paragraph – “We find it helpful when companies submit their equity compensation plans for shareholder approval more frequently than required by listing exchange standards to facilitate the timely consideration of evolving plan governance practices. Particularly when share reserve requests grow significantly versus prior plans, boards should clearly explain any material factors that may potentially contribute to changes from the company’s past equity usage. We may support an equity plan share request if we determine that support for such plan is in the best interests of shareholders; however, we may also vote against members of the compensation committee to signal our concerns about the structure or design of the equity compensation plan or the company’s equity grant practices and the imprudent use of equity.”
– Repricings: For option repricings and exchanges, the policy specifies that BlackRock may vote against members of the compensation committee where a board implements or approves a repricing or option exchange without shareholder approval. Where such a repricing or option exchange includes named executive officers, we may also vote against the company’s annual advisory vote on executive compensation. This builds on BlackRock’s existing policy of voting against equity plans that permit repricing without shareholder approval.