The Advisors' Blog

With ISS’s latest policy updates loosening the proxy advisor’s preference for at least 50% of LTI in PSUs as long as time-based equity meets its long-term parameters, this Semler Brossy article says some companies are considering taking advantage of that flexibility. There’s the old adage “if it ain’t broke, don’t fix it,” but for some companies, maybe the old ways are broken. The article says companies aren’t just considering a change to make a change, but to address some challenges they’re facing that may actually be making their PSUs less effective.

One of investors’ perceived issues with PSUs is the challenge of setting accurate multi-year performance goals, especially amid today’s sustained macroeconomic and geopolitical volatility. When the future is murky or rapidly changing, multi-year goal setting can be particularly difficult for some companies.

In addition, not all situations lend themselves to longterm goal-setting, even if volatility subsides. High-growth and/or cutting-edge companies may also face difficulties forecasting three-year financial targets with accuracy.

Similarly, companies undergoing significant investment phases that will impact specific financial metrics, or those expecting downward revision to financial performance, may struggle to set goals that remain meaningful throughout performance periods.

Finally, overly rigorous goal setting can also introduce retention risks. Compensation committees find themselves walking a precarious line between setting challenging yet achievable goals. Miss the mark with overly aggressive targets, and executives face low holdings and realized pay, potentially dampening motivation and causing unwanted attrition. Set goals too conservatively, and companies face “over payouts” that draw criticism from proxy advisors and shareholders.

Semler Brossy suggests that compensation committees ask themselves:

Do standard financial goals best capture our company’s strategic priorities?

Do performance-based metrics encourage the behavior we want from our leadership team?

Does a focus on 3-year performance goals directly align with our business cycles?

If a change is appropriate, the article addresses some options, including some tried-and-true methods like relative metrics and shorter performance periods, but also increasing the weighting of RSUs or options:

Increased RSU or options weighting to create more modest PSU mixes (such as 25% rather than 50% of the equity grant) can reduce overreliance on PSUs while maintaining some performance-based component. Replacing PSUs with a lower, equivalent value of RSUs can even reduce pay relative to peers while improving pay delivery certainty—a combination that may resonate with both executives and shareholders concerned about pay levels. [. . .] [C]ompanies can merge this approach with longer vesting to further enhance the long-term alignment with shareholders.

Just because ISS has softened its policy on PSUs doesn’t mean that companies making a change won’t face a challenging say-on-pay season. Telling your story will continue to be critical.

This is just one of the timely topics that will be discussed during the panel “The Top Compensation Consultants Speak” at our Proxy Disclosure & Executive Compensation Conferences on October 12 – 13 in person in Orlando and virtually streamed. Semler Brossy’s Blair Jones will be addressing evolving conversations around equity design, including when PSUs work well, when they don’t and when to consider a new design – plus long-vested RSUs and other alternatives to traditional PSUs.

Don’t miss these critical conversations! Sign up for our 2026 Proxy Disclosure Conference and 23rd Annual Executive Compensation Conference today. Register online or contact us at info@CCRcorp.com or 1-800-737-1271.

– Meredith Ervine