The Advisors' Blog

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.

– Liz Dunshee