I recently shared on The Proxy Season Blog on TheCorporateCounsel.net that “anti-ESG” groups have been responsible for about 20% of this year’s Rule 14a-8 shareholder proposals – which is a 5% uptick compared to last year and represents about 4x as many proposals. These proposals aren’t getting much support from shareholders. Still, there is one variation that compensation folks shouldn’t ignore.
This year, the National Legal and Policy Center has submitted several Rule 14a-8 proposals aimed at eliminating diversity metrics from incentive plans – including at Coca-Cola, American Express, and Merck. Although the wording varies, each resolution follows this general format:
Shareholders request the Board of Directors’ Compensation and Management Development Committee to revisit its incentive guidelines for executive pay, to identify and consider eliminating discriminatory DEI milestones from compensation inducements.
To the extent that companies use DEI-related metrics, they typically appear in annual programs – and as discussed in our “Top Compensation Consultants Speak” webcast last week and in my earlier blog, many companies have already moved away from these metrics, especially if they were quantitative. Yet, despite the wording of the proposal and the practice of companies revisiting their annual incentive metrics every year, the Corp Fin Staff didn’t agree that the proposal could be excluded based on companyarguments of “substantial implementation.” While no-action responses are always fact-specific, this suggests companies may not be able to sidestep these proposals simply because they revisit their metrics each year – and that the bar for excluding these proposals under Rule 14a-8(i)(10) may be higher than some hoped.
On top of that, the proponent seems to broadly define “DEI milestones.” For example, Merck disclosed in last year’s proxy statement that its “Sustainability” metrics were based on worldwide access to health and engagement and inclusion of employees. On a standalone basis, that doesn’t scream “DEI milestones.” This year, the company clarified that this is measured through employee surveys.
All this to say, NLPC’s net is wide. If it continues to pursue this proposal, a company may find itself dealing with it even if the incentive plan doesn’t expressly incorporate DEI targets or refer to “diversity” – for example, if disclosures outside the CD&A discuss diversity programs or if the basis for non-financial incentives is unclear. The good news is that the companies that received the proposal this year have provided a good framework for statements in opposition.
It’s not uncommon for equity award agreements to say that the recipient will forfeit their awards if they breach non-solicitation, non-competition, and/or confidentiality provisions. Ideally, the very thought of forfeiting their valuable equity deters people from engaging in these behaviors. But not always. And a recent case from the Delaware Court of Chancery held that if a company isn’t careful about contract law basics, it might have limited recourse if a former employee says: “So what?” This memo from Troutman Pepper Locke explains the case:
The agreement was governed by Delaware law and identified the issuance of the units as “adequate and sufficient consideration” for the restrictive covenants. The agreement further provided that if Doorly was terminated for cause or breached the restrictive covenants, his vested and unvested units would be “automatically forfeited.” Relevant here, the agreement did not create a right of employment, nor were there any allegations that Doorly received a promotion, increased compensation, expanded responsibilities, or enhanced access to company information in exchange for signing the agreement.
Doorly eventually resigned from Cross Fire, but Cross Fire subsequently characterized the separation as “for-cause termination” because Doorly allegedly breached the restrictive covenants in the agreement by creating an entity that competed with Cross Fire customers and recruited a Cross Fire employee, resulting in the automatic forfeiture of the units. The plaintiff filed this action against Doorly seeking an injunction to enforce the restrictive covenants, damages for breach of contract, and a declaratory judgment. Doorly moved to dismiss and argued that the forfeiture of the units eliminated the consideration for the agreement, rendering the restrictive covenants unenforceable.
Here’s the takeaway:
The court agreed with Doorly and dismissed the plaintiff’s claims because the agreement explicitly provided that the units were the sole consideration for the restrictive covenants. Without the units, according to the court, there was no consideration to support the agreement, making the restrictive covenants unenforceable under basic contract law principles. In its analysis, the court emphasized the necessity of consideration for the enforceability of contracts, particularly when imposing new restrictive covenants on an existing employee.
The decision is important for employers, especially sponsor-backed companies, who intend to constrain employees with restrictive covenants, to ensure that any restrictive covenants are supported by valid consideration (e.g., promotion or bonus) to be enforceable.
Early returns are in for this year’s equity plans. I don’t want to jinx it, but things are looking good so far! Here are stats from Semler Brossy as of May 15th (pg. 6):
• Average vote support for equity proposals thus far in the proxy season (90.3%) is 40 basis points above the average vote support observed at this time last year (89.9%)
• No companies have received vote support below 50% in 2025
• ISS has recommended “Against” 21.3% of equity proposals, which is far below the 2024 full-year rate
• Average support for equity proposals that received an ISS “Against” recommendation thus far in 2025 (78%) is aligned with average vote support observed for companies that received an ISS “Against” in the past decade (76%)
The report goes on to spell out what is already implicit in the stats above: companies that receive an “Against” recommendation from ISS see support levels about 15% below than those that receive a “For” recommendation. It’s not clear whether this year’s results are a function of companies incorporating the plan features – and prohibitions – that investors and ISS want to see, or if there has been an update to how the methodology is being applied this year.
With equity being such an important part of compensation – not just for executives, but for much of the workforce – it’s important to be able to incorporate info about the latest trends into your own decisions and proposals. Especially in today’s volatile environment…what approach protects the share pool while also giving flexibility?
Based on skills matrices for the 50 largest US public companies, Farient Advisors recently identified these trends in skills held by compensation committee chairs over the past 5 years:
– Human capital and compensation experience have tripled
– Industry and business acumen has increased by 46%
– Governance, risk management, and public policy expertise have risen by 46%
– Accounting and finance experience has grown by 33%
– Global experience has increased by 32%
The Farient blog also notes that certain soft skills are particularly important for compensation committee chairs, who are often tasked with difficult conversations with executives and also get a lot of face time with shareholders in engagement meetings.
Emotional Intelligence and Communication Skills: Pay is personal. As Chairs engage with diverse stakeholders — from executives and board members to shareholders and employees — emotional intelligence is paramount. The ability to foster open communication, build trust, and navigate sensitive discussions surrounding pay is essential. Strong interpersonal skills enable the Chair to facilitate engaging and constructive conversations about compensation philosophy and practices, ensuring all voices are heard and considered.
Further, the ability to communicate to shareholders the strategy and rationale behind compensation decisions provides transparency and deepens their understanding of the board’s actions. While not all will agree with every committee decision, understanding that those decisions are rooted in sound strategy, analysis, and governance will go a long way in avoiding undue scrutiny.
Tune in at 2:00 pm Eastern today for our annual 60-minute webcast, “The Top Compensation Consultants Speak.” We’ll hear Blair Jones of Semler Brossy, Ira Kay of Pay Governance and Jan Koors of Pearl Meyer discuss the latest considerations for compensation committees. The panel will cover the following topics:
– DEI Programs, Disclosures & Metrics: The Compensation Committee’s Role
– Plan Design & Goal Setting Amid Uncertainty & Volatility
– Key Changes in Investor & Proxy Advisor Policies & their Impact in 2025
– Metrics & Perks: Notable Observations from the 2025 Proxy Season So Far
– Compensation-Related Shareholder Engagement
– Did Dodd-Frank Rules Reduce or Curb CEO Pay or Change Incentive Design?
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 with our team at info@ccrcorp.com or 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 60-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.
Mark your calendars for Tuesday & Wednesday, October 21st & 22nd, for our “2025 Proxy Disclosure & 22nd Annual Executive Compensation Conferences” in Las Vegas, and register now to attend in person with the Early Bird price before it’s gone! Here’s the full agenda, and here are the fabulous speakers. As usual, we’re bringing you two panels of speakers with decades of experience with the inner workings of the Commission — “The SEC All-Stars: Proxy Season Insights” panel on Tuesday & “The SEC All-Stars: Executive Pay Nuggets” panel on Wednesday.
Based on Friday’s announcement of the SEC’s June executive compensation roundtable, it sounds like all executive compensation disclosure requirements are “on the table” for possible changes — so it certainly looks like our “SEC All-Stars” panels are going to have a lot to talk about by the time our Conferences roll around! Our speakers will also address topics like “E&S: Balancing Risk & Reward in Today’s Environment,” “Delaware Hot Topics: Navigating Case Law & Statutory Developments,” “The Proxy Process: Shareholder Proposals & Director Nominations” and “The Year of the Clawback” — and whatever regulatory (and deregulatory) developments happen between now and October that you’ll inevitably need to understand and be called to advise on!
If you can’t make it to Vegas in October, you’ll want to join virtually so you don’t miss out on all the wisdom our expert speakers will share.
Last Friday, the SEC announced that it will host a roundtable discussion on executive compensation disclosure requirements on June 26. It will be held at the SEC’s headquarters and open to the public (plus streamed live on SEC.gov). More Information on the agenda & speakers will be posted before the event.
In the meantime, Chairman Atkins issued a statement saying, “While it is undisputed that [the executive compensation] requirements, and the resulting disclosure, have become increasingly complex and lengthy, it is less clear if the increased complexity and length have provided investors with additional information that is material to their investment and voting decisions. It is important for the Commission to engage in retrospective reviews of its rules to ensure that they continue to be cost-effective and result in disclosure of material information without an overload of immaterial information.” He then includes the following questions for the staff to consider — and for members of the public to provide views on (before or after the event). Comments can be provided by mail or electronically — see the announcement for details.
Executive compensation decisions: setting compensation and making investment and voting decisions
– What is the process by which companies develop their executive compensation packages? What drives the development and decisions of compensation packages? What roles do the company’s management, the company’s compensation committee (or board of directors), and external advisors play in this development?
– Current disclosure requirements seek to unpack these processes for investors. How can our rules be revised to better inform investors about the material aspects of how executive compensation decisions are made?
– What level of detail regarding executive compensation information is material to investors in making their investment and voting decisions? Is there any information currently required to be disclosed in response to Item 402 of Regulation S-K that is not material to investors or that could be streamlined to improve the disclosure for investors? How do companies’ engagement with investors drive compensation decisions and compensation disclosure?
Executive compensation disclosure: past, present, and future
– The Commission substantially revised its executive compensation disclosure requirements in 2006 with requirements to provide, among other things, enhanced tabular disclosure of compensation amounts and a compensation discussion and analysis of the company’s compensation practices. The rules were intended to provide investors with a clearer and more complete picture of the compensation earned by a company’s executive officers. Have these disclosure requirements met these objectives? Do the required disclosures help investors to make informed investment and voting decisions? Given the complexity and length of these disclosures, are investors able to easily parse through the disclosure to identify the material information they need? In what ways could disclosure rules be revised to return to a simpler presentation and focus?
– The Dodd-Frank Act added several executive compensation related requirements to the securities laws, including shareholder advisory voting on various aspects of executive compensation. What types of disclosure do investors find material in making these voting decisions? Are companies able to provide such disclosure in a cost-effective manner? Do the current rules strike the right balance between eliciting material information and the costs to provide such information?
– With the experience of almost 20 years of implementing the 2006 rule amendments, how can the Commission address challenges that either companies or investors have encountered with executive compensation rules and the resulting disclosures in a cost-effective and efficient manner while continuing to provide material compensation information for investors? For example, are there requirements that are difficult or costly to comply with and that do not elicit material information for investors? Are there ways that we can reduce the cost or otherwise streamline the compensation information required by the rules
Executive compensation hot topics: exploring the challenging issues
– The Commission recently adopted rules implementing the requirements of Dodd Frank related to pay-versus-performance and clawbacks. Now that companies have implemented the new rules, are there any lessons we can learn from their implementation? Can these rules be improved? If so, how? For example, which requirements of these rules are the most difficult to comply with and how could we reduce those burdens while continuing to provide investors with material information and satisfy these statutory mandates?
– Since adoption of the pay-versus performance rules, I have continued to hear concerns regarding the rule’s definition of “compensation actually paid” (CAP). What has been companies’ experience in calculating CAP and what has been investors’ experience in using the information to make investment and voting decisions?
– What has been companies’ experience in applying the two-part analysis articulated by the Commission in 2006 with respect to evaluating whether perquisites for executive officers must be disclosed? How do disclosure requirements resulting from the test, and whether a cost constitutes a perquisite, affect companies’ decisions on whether or not to provide a perquisite? For example, how has the application of the analysis affected evaluations relating to the costs of security for executive officers? Are there types of perquisites that have been particularly difficult to analyze? How do investors use information regarding perquisites in making investment and voting decisions?
It certainly seems that the SEC’s retrospective review of executive compensation disclosures will be very broad! I immediately noted that clawbacks, PvP (in particular, the CAP calculation) and perks (in particular, executive security) were all specifically noted — while CEO pay ratio was not. But Mark Borges said he suspects pay ratio is probably in the spotlight as well. He also noted that each of the cited rules is statutorily mandated — so the Commission is probably most interested in how it can streamline the compliance burden associated with these disclosures.
In case you missed it yesterday, we’re delighted to welcome Mark Borges back to our blogging team, with the “Borges’ Proxy Disclosure Blog“! Mark doesn’t really need an introduction, but for those who haven’t met him, Mark is a Principal at Compensia. He regularly speaks on webcasts on our sites and on NASPP – as well as at our annual conferences. I always learn a lot from Mark – he is full of real-life practice pointers and plugged into the very latest developments.
One of the many reasons Mark knows so much is that he’s an avid reader of proxy statements. His blog is key resource if you are wanting to follow how companies are handling:
– New requirements,
– Tricky situations, and
– Changing “best practices”
Mark’s “relaunch” post covers learnings from recent disclosures about clawback analyses under Item 402(w).
There will be more to come! Subscribe to Mark’s blog to get an email whenever he’s found a disclosure to highlight. Welcome back, Mark!!
I shared an “early filer” stat last month that showed that spending on personal security arrangements had increased in 2024, compared to 2023. A new analysis from Equilar shows that the trend is holding true with additional companies. Here’s more detail:
An Equilar study of S&P 500 companies reveals that an increasing number are offering security perquisites as part of executive compensation packages. The analysis examines 208 companies that have filed proxy statements by April 2, 2025, and finds that almost a third (31.3%) of them provided some type of security perk in 2024. This represents a 27.8% rise between 2023 and 2024, and a 47.6% increase from 2021.
Additionally, the median spending on security perquisites has seen a significant increase of 118.9%, increasing from $43,068 in 2021 to $94,276 in 2024. This includes a 36.3% upturn between 2023 and 2024, when the median spending rose from $69,180.
Equilar also found that companies that have significantly increased spending have provided some color to justify that spend. Here are a couple of examples:
At a company where security spending increased by over 8,000% – The Company’s 2025 proxy statement specifically details security concerns and direct threats experienced by its CEO and senior executives, referencing recent publicized security incidents involving executives at other companies.
At companies that added security as a benefit – As of April 2, 2025, fourteen large-cap companies that did not previously provide security benefits to their executives have begun doing so. One such company, Centene Corporation, even notes in its recent proxy filing that the new security protections are correlated to the security issues experienced by executives within the healthcare industry.
Since most of the disclosures underlying Equilar’s analysis are about 2024 spending – which largely predated the tragic December murder of Brian Thompson – it’s likely that proxy statements filed next spring will show even greater levels of personal security. This can include actual security as well as requirements like avoiding commercial air travel. Remember that in the SEC’s view, these benefits are disclosable as “perquisites” even though many view them as necessary in today’s day and age. We have a checklist for members that can help with parsing executive security trends and disclosure requirements.
In early say-on-pay stats that I shared a few weeks ago, only a few companies have received an “against” recommendation from ISS so far this year. Despite that good news, a recent analysis from Exequity says that companies with summer meetings – specifically, those in June – shouldn’t get too comfortable. Here’s why:
In fact, as much as there is a seasonality to proxy filings and annual meetings, there seems to be seasonality to ISS recommendations. Exequity analyzed SOP voting results and ISS “Against” recommendations month by month from 2011 to 2024. The data indicates that companies with annual meetings in June are more likely to receive adverse recommendations from ISS than those holding meetings in other months.
Exequity found that last year, 43% of all adverse recommendations came in June! Here’s what the data showed from 2011 – 2024:
• The average annual rate of “Against” recommendations for January through May was 10% and July through December 13%.
• The average annual rate of “Against” recommendations in June was 18%.
• This trend holds on an annual basis despite the dates of annual meetings slowly shifting away from April and into June over the period measured (~14% of meetings in June 2011 versus 26% in June 2024).
Why do ISS “against” recommendations peak in June? Exequity ran the numbers to see if it could be explained by pay & performance disconnects, “repeat offenders,” or industry considerations. None of those possible explanations panned out. The low-hanging joke would be that maybe ISS is just tired and cranky by the time June rolls around. I know a few comp consultants and securities lawyers who could empathize with that! But – as explained in the chapter of our Disclosure Treatise on “Say-on-Pay Solicitation Strategies” – the proxy advisor does have quantitative & qualitative models that are intended to ensure that companies get consistent treatment, so I’d be careful in jumping to that conclusion.
That said, given the influence of ISS recommendations on say-on-pay outcomes, even an unexplained trend like the “June Phenomenon” deserves attention. You may get some weird looks if you suggest moving your annual meeting solely because of this. But hey, plenty of athletes do strange superstitious things on game day, so maybe it’s worth carrying that practice over to the annual meeting sphere (also remember to wear your lucky socks). Of course, rescheduling an annual meeting also isn’t a decision to make lightly! The (potential) benefits with ISS might be outweighed by the costs of disrupting everyone’s calendars, potential changes to deadlines, etc.