I’m sure many of our readers have more refined holiday traditions than I do, but I like to think that some of you enjoy watching random portions of “A Christmas Story” during its annual 24-hour marathon. If so, you’ll recall how Ralphie’s excitement reaches its pinnacle when his “Old Man” tells him there’s one more present hidden behind the tree. That is kind of how I felt yesterday, when Meredith and I realized that during the December hustle & bustle, ISS posted updated FAQs and related documents for the upcoming 2026 changes that were announced in late November.

As Meredith shared back in November, there are many compensation-related changes to ISS’s benchmark voting policies that will apply to 2026 meetings. The FAQs overlap with – and expand upon – those updates. But (to keep the holiday analogies going) there are also a couple of Easter eggs! Here are a few key takeaways:

1. Non-Compensation Policies & Procedures FAQs: Consistent with the new benchmark policy changes, ISS beefed up the FAQ on non-employee director pay by saying that it may issue adverse recommendations if there’s been problematic pay in two or more years (even if non-consecutive) – and that ISS could also issue an adverse recommendation in Year 1 in egregious cases. The FAQ also clarifies that ISS is inclined to issue an adverse vote recommendation for the entire board committee responsible for director pay, rather than just the chair. In ISS’s view, problematic director pay can exist based on excessive magnitude, or problematic perquisites, performance awards, stock options, or retirement benefits.

2. Equity Compensation Plan FAQs: Updates include:

– When calculating burn rate, ISS doesn’t offset incentive compensation grants with repurchased shares.

– Beginning February 1, 2026, equity plan proposals are generally analyzed on a post-economic transaction basis when matters such as a merger, financing, etc. are also on the ballot. Common shares issuable pursuant to the economic proposal will be included in ISS’s calculations, unless the proposed equity plan would only become effective if the proposed transaction isn’t completed.

– Elaborating on the two changes to the Equity Plan Scorecard framework about (1) limits on cash-denominated awards to non-employee directors (which applies to S&P 500 and Russell 3000 models) – and (2) the “overriding factor” for a plan that lacks a sufficient “Plan Features” pillar score (which applies to S&P 500, Russell 3000, and non-Russell 3000 models).

–> For the non-employee director awards, the FAQ says that if a plan discloses a cash-denominated award limit for directors – or if directors aren’t eligible participants under the plan – a company gets full points. If directors are participants and no cash-denominated limit is disclosed, then companies get no points for that factor. Companies don’t get points if their plan only has non-cash (i.e., share-denominated) award limits.

–> For the “Plan Features” overriding factor, the FAQ says ISS may recommend a vote against the equity plan proposal when the pillar score is less than 7 points.

– For non-Russell 3000 models, a clawback factor is now also part of the “grant practices” pillar.

– Updating factor weightings within all models (but no changes to any of the passing scores).

3. Pay-for-Performance Mechanics: ISS details how it’s adjusted its model to reflect longer time horizons – from 3 to 5 years for the measures of Relative Degree of Alignment and Financial Performance Assessment and from 1 year to the average of a 1- and 3-year assessment for the relative Multiple of Median measure. Those time horizons might be shortened – or measures might be excluded – for companies with fewer years of data. The FAQ explains how this is all calculated and assessed. This FAQ also says that extended time-based awards will now be viewed as a positive factor in the qualitative evaluation – while awards with vesting or retention requirements of less than 5 years will continue to be viewed negatively.

4. Executive Compensation Policies: Lots of updates here:

– Says that ISS is unlikely to raise significant concerns for relatively high executive security-related perks, as long as the company discloses a reasonable rationale. For example, disclosure of an internal or third-party assessment, and a broad description of the security program and its connection to shareholder interests, would generally mitigate concerns regarding relatively large security costs. However, extreme outliers in security costs may still drive significant concerns, particularly if not adequately addressed in the proxy disclosure.

– States that ISS will review management proposals seeking shareholder approval to reprice or exchange stock options on a case-by-case basis. ISS will consider factors like the quality of disclosure and rationale, whether the proposal is value-neutral, the program’s participants, historic trading patterns, timing, stock volatility, cost of equity plans, etc. ISS will generally recommend opposing repricing/exchange programs if the program includes NEO and/or director participants, the replacement awards are not subject to a minimum one-year vesting period, or any other factors that ISS considers problematic.

– Adds to the factors that ISS considers when evaluating “responsiveness” to a low say-on-pay vote to include significant corporate activity (e.g., mergers) and “any other recent compensation action or factor considered relevant to assessing board responsiveness.”

– Lays out lengthened time periods for the pay-for-performance model, similar to what’s explained above for the Pay-for-Performance Mechanics.

– Points out that the 3-year Multiple of Median measure is now incorporated into the quantitative screen, instead of just being provided for informational purposes.

– Updates and clarifies the list of factors ISS considers in its qualitative evaluation – e.g., to include time horizons, rationale for pay structures and decisions, and relevant industry or other external factors.

– Adds an explanation of how ISS considers a company’s financial performance in the qualitative evaluation and says that ISS sources GAAP performance measures sourced from Compustat as well as adjusted results and financial highlights disclosed by the company in its proxy statement. ISS also might consider performance as measured by its own financial performance assessment measure. For example, strong financial or operational results may explain above-target incentive payouts despite poor TSR performance.

– Details how ISS will review extended time-based awards as part of the pay mix evaluation. A program that consists primarily or entirely of time-based awards won’t in itself raise significant concerns as long as the design uses a time horizon of at least 5 years, which can be achieved through vesting or retention requirements. The FAQ goes into detail on how to demonstrate a 5-year time horizon through different types of vesting arrangements. The FAQ says that as before, if the program consists of more than 50% time-based equity that doesn’t utilize an extended time horizon, it will generally be a negative consideration.

– ISS (and investors) still want one-time/special awards to be performance based. The factors for those awards are unchanged.

– Clarifies that ISS considers profit-sharing awards to be incentive compensation, so payments are included in the quantitative screen and considered in the qualitative evaluation. ISS considers similar factors as for other incentive compensation when assessing these awards.

– Adds detail on how ISS evaluates annual incentives based on discretionary assessments. Bonus programs that are heavily based on discretionary determinations are viewed negatively, particularly for companies that exhibit a pay-for-performance misalignment. The FAQ says disclosures about discrete category and metric weightings, minimum performance requirements for payouts, and pre-set target/maximum pay opportunities, are all considered positive features and they may provide mitigating weight to such bonus programs that are informed by performance but ultimately discretionary.

5. Peer Group Selection Methodology and Issuer Submission Process: Beginning with peer groups constructed for meetings on and after February 1, 2026, ISS’s methodology will give priority to potential peers that were previously chosen by ISS as a peer for the company (among other unchanged factors).

Even though we’re moving into our “fragmentation era” for investor votes, keep in mind that the ISS recommendations still carry weight and reflect the views of many investors. To get more context and intel on ISS’s 2026 updates and priorities – so that you know what to expect for the upcoming proxy season – make sure to tune in tomorrow to our webcast on TheCorporateCounsel.net, “ISS Policy Updates and Key Issues for 2026.” Marc Goldstein, Managing Director & Head of U.S. Research at ISS, will discuss key themes with Davis Polk’s Ning Chiu and Jasper Street Partners’ Rob Main. If you aren’t already a member of TheCorporateCounsel.net, email info@ccrcorp.com to try a no-risk trial.

– Liz Dunshee

In this recent report (available for download), BDO highlights mid-market compensation trends, based on an analysis of 600 companies’ 2025 proxy disclosures. Here are a few key takeaways:

– CEO total direct compensation went up in six out of eight industries. The average CEO pay increase of 2.3% at the BDO 600 companies is lower than what has been reported at larger companies. For example, for the 2025 Equilar 100, median pay for 100 highly compensated S&P 500 CEOs increased by 9.5%, with the median value of stock awards increasing 40.5% in 2024.

– In aggregate, CEOs and CFOs experienced pay increases of 2.3% and 5.8%, respectively. When comparing year-over-year change, CEOs and CFOs experienced the following increases:

• CEOs were provided salary increases of 4.2% on average, while total cash increased by 4.5%. STI increased by 9.8%, reversing a two-year trend of decreases (71% decrease in 2023 and 5.1% decrease in 2022). LTI| increased by 1.1%, and TDC increased by 2.3%.

• CFOs received salary increases of 5.5% on average, while total cash increased by 3.9%.

• For CFOs also, STI increased by 10.6%, reversing a two-year trend of decreases (8.0% decrease in 2023 and 7.7% decrease in 2022). LTI increased by 6.0% and TDC increased by 5.8%.

If you’re thinking that “mid-market” might span a large range of company sizes and practices, the study addresses that by breaking down trends into 3 groups based on revenue size (or assets, for financial services), as well as industry groups. Not surprisingly, the disclosures show that pay is highly correlated with company size:

– Average CEO TDC ranges from $3,467,589 for the smallest companies (Size Group A) – to $7,326,556 for the largest companies in the sample (Size Group C).

– Average CFO TDC ranges from $1,456,672 for companies in Size Group A to $2,948,990 for companies in Size Group C.

– Large companies also awarded the largest pay increases for CEOs and CFOs. CEOs of large companies (Size Group C) experienced the largest increase in pay (3.2%) while CEOs of the smallest companies (Size Group A) experienced a 0.3% decrease. CEOs of midsized companies (Size Group B) experienced a 1.8% increase.

– CFO pay in Size Group C had the largest increase at 6.8%, while CFOs in Size Group B experienced a 4.0% increase. CFOs in Size Group A experienced an increase of 5.2%.

Check out the full survey for more info on the elements of compensation and industry-based trends. BDO also published an analysis of mid-market director compensation trends, which is available on the same download page. Even though the data is based on 2024 compensation practices that were disclosed in 2025, the benchmarking can still be helpful as compensation committees determine programs for the upcoming year.

Members of this site can access additional data in our “Compensation Surveys” Practice Area. (If you aren’t already a member, email info@ccrcorp.com.)

– Liz Dunshee

We’ve posted the transcript for our recent webcast “Equity Award Approvals: From Governance to Disclosure” with Jeff Joyce of Pay Governance and Sheri Adler and David Kaplan of Troutman Pepper Locke. They addressed:

1. Not Your Kindergartener’s Math: Share Counting
2. Planning Ahead: Award Design
3. Approval Formalities:
   • Who Approves?
   • What Gets Approved?
   • Grant Timing, Sizing and Disclosure
4. Documenting and Communicating Awards

Sometimes I find myself afraid to listen to these sorts of foundational programs because I know I’ll learn something that I will feel like I should already know. That was definitely true for me in this program, so here’s an excerpt of one of the discussions I found really illuminating. I hadn’t previously focused enough on the size of the impact of this conversion method — and the potential consequences for pay-for-performance assessments (or how explicit good disclosure is on this point).

David Kaplan: [I]f you’re granting PRSUs, you’ve got a choice between: Am I going to convert that target dollar value to a number of shares based on a stock price (spot price or a multi-day average) or using a Monte Carlo value? . . . It’s not unusual in my experience to see Monte Carlo values that are 130%, 135%, 140% of stock value. Jeff, are you seeing values far beyond that, or is that what you see typically?

Jeff Joyce: I think that’s the typical range, but I would note that there are some companies that do have Monte Carlos in the upwards of 150% to 160% of the face value of the stock, and that’s where this typically comes into question.

When you look at prevalence of practice, and this was somewhat surprising to me, a good portion of the market that uses PRSUs based on a market condition, a stock price or a TSR condition, uses stock price on the grant date rather than Monte Carlo for determining the number of shares . . . Basically, they say, “That’s too confusing for our participants. We’re going to use the stock price on the data grant just like RSUs,” but as you point out, there’s implications to doing that.

The most notable is for your named executive officers, you’re granting a target value using a lower share price so you get a greater number of shares, but then when it’s disclosed in the Summary Compensation Table, you apply the Monte Carlo, the accounting value, to that and it’s a value greater than that $1 million. It would be 1.5 times that if the Monte Carlo is 1.5. There’s a disconnect between the intended value and the disclosed value and the accounting expense associated with the award. If you’re using market data that doesn’t take into account the valuation approach, you’re over-delivering from a competitive perspective . . . I think a key takeaway from today’s discussion is to understand how shares are being determined for grant and just ensuring that the committee is aware of that, because from a Say-on-Pay perspective, this does influence the proxy advisor pay-for-performance assessments.

David Kaplan: . . . As you pointed out, Jeff, these differences can be material. If you’ve got committees that are saying, “We want to pay our named executive officers at the 50th percentile, and we’re going to convert PRSUs based on stock price,” and you’ve got that 150% Monte Carlo in your example — if your program is heavily tilted toward performance-based comp, as we’d all advise it should be, when you end up applying those Monte Carlo values, the accounting values come way higher.

You can end up essentially having total pay to CEOs be, I don’t know, 20% higher than really benchmarked. What you thought was a 50th percentile pay package turns into a 75th percentile pay package or more. The message to the boards we advise is: Use whatever conversion value you’d like, but know that you’re doing that. Understand those outcomes and act accordingly.

Members of this site can access the transcript of this program for free. If you are not a member of CompensationStandards.com, email info@ccrcorp.com to sign up today and get access to the full transcript.

– Liz Dunshee