It’s still early days for Dodd-Frank clawback policies – but this Woodruff Sawyer blog says that so far, very few companies have experienced restatements that trigger a recovery. Here’s more detail:
Recovery Analyses Are Happening, but Clawbacks Are Not
Under the SEC’s final rule, both “Big R” (material) and “little r” (immaterial) restatements can trigger the need for a recovery analysis. That makes the bar for triggering a review quite low.
Based on analysis by Deep Quarry, through the first six months of 2025, there have been 50 companies that have included recovery analysis disclosures in their filings. Through the same period, only six companies disclosed the clawback of executive compensation following an accounting restatement. While it’s more than the two companies that disclosed clawbacks in the first half of 2024, the delta thus far is underwhelming.
Without news of big recoveries, it’s not too surprising that the insurance market also hasn’t taken off. Remember that executives would need to pay for insurance out of their own pocket since the rule prohibits companies from reimbursing them. The blog suggests that if executives do get more anxious about clawbacks, there may be unintended consequences for shareholders:
The SEC was right that people would be interested in this type of coverage, but we have not seen a robust market response.
Some carriers stepped forward with coverage options designed to respond to clawback demands. However, the limits were low, the premiums were high, and the coverage had to be paid for by individuals, not the company.
If the rule starts to have real consequences, the insurance market may eventually respond. But if that happens, one wonders: If executives can simply insure against the risk, what accountability does the rule actually enforce?
Further, consider this: the greater risk executives face of losing their incentive compensation, the greater the amount of incentive compensation a company needs to award to attract and retain talent (e.g., an uncertain dollar is worth less than a certain dollar).
In terms of seeing a big impact here, are we waiting for Godot? That may be the case if we’re talking about a groundswell of clawbacks – time will tell. Unfortunately, if a restatement happens at your company, the only outcome that will matter to you at that point will be your own. On a positive note, there are now a few precedents to work from, and these statistics may give some comfort to practitioners who have to deal with the complexities of the clawback process if it’s triggered. For sample clawback disclosure – and helpful commentary – see this Proxy Disclosure Blog from Mark Borges.
If governance practices were one-size-fits-all, our jobs would be boring and corporate decision-making would be a mess. But since we all still want to know what everyone else is doing, this memo from Compensation Advisory Partners canvasses practices in setting CEO and non-employee director compensation among the 110 largest companies in the S&P 500. Maybe you’ll see some good practices to adapt to your own clients and companies.
Here are four takeaways:
– 26% require the full board to approve CEO compensation, typically upon recommendation from the compensation committee, and 72% give final approval authority to the compensation committee itself, with the board informed through committee reporting and disclosure.
– A small fraction of companies (2% of CAP’s sample) utilizes a hybrid approach, where the full board, guided by the compensation committee’s recommendation, approves the CEO’s salary, while the compensation committee approves all other elements of pay.
– For non-employee director pay, companies are split between assigning this role to the compensation committee (57% of CAP’s sample) and assigning it to the nominating/governance committee (41%), though in both models, the full board almost always retains final approval (97% of CAP’s sample).
– One company in CAP’s sample (1%) has a combined compensation and nominating/governance committee that oversees director pay.
The memo delves into the pros & cons of various approaches to compensation oversight. It recommends that boards and compensation committees periodically revisit their structure and approach – and clearly communicate both the process and rationale for their practices.
You can find more resources about compensation committee roles in our “Compensation Committee Charters” Practice Area. If you aren’t already a member of this site, email info@ccrcorp.com to get access.
As you may have read, Tesla shareholders approved an up-to-$1 trillion performance award for Elon Musk at the company’s annual meeting last week. The company’s proxy statement describes the award – and the voting results are detailed in this Form 8-K that the company filed on Friday.
This newsletter from Andrew Droste parses the percentage support – and also shows how the voting outcomes would have changed if insider holdings were excluded from the calculation. Here’s an excerpt, which shows that the pay-related proposals would have passed either way:
– Proposal 2: Say-on-Pay – 78.2% actual result, with insiders / 69.2% hypothetical result, without insiders
– Proposal 3: A&R 2019 Equity Incentive Plan – 78.7% actual result, with insiders / 69.8% hypothetical result, without insiders
– Proposal 4: 2025 CEO Performance Award – 76.7% actual result, with insiders / 66.9% hypothetical result, without insiders
Tesla put on a full-court press for this meeting – you can see the numerous “additional soliciting material” submissions on the company’s Edgar page, which are a master class in using social media to bring in the vote. Here’s one of my favorites. This Business Insider article recaps:
Starting from September, Tesla ran ads across Facebook, Instagram, X, and Google that told shareholders they “must retain and incentivize Elon” and that “transformative growth” starts with “aligning CEO pay with shareholder value.”
The board also aired an ad on Paramount+ urging shareholders to vote in alignment with the board’s recommendations, concluding with “the future of Tesla is in your hands.”
Those efforts paid off, overcoming negative recommendations and voting decisions by ISS, Glass Lewis, Norges, CalPERS, and other pension funds. In addition to the magnitude of the award, the Business Insider article notes that there were concerns that it incentivizes outsized risks in building autonomous vehicles. But as this WSJ article shows, other funds voted in favor.
Liz shared on TheCorporateCounsel.net earlier this week that, in late October, Glass Lewis announced the results from its annual policy survey. As she noted, you might be wondering, “does this still matter, since Glass Lewis is moving away from its house policy?” She says the answer is “yes,” for a few reasons:
1. That move isn’t happening until 2027.
2. Even after the “house policy” disappears, Glass Lewis is still going to provide research and perspectives to clients – it’s just that everything will be more customized, which is already happening at a certain level. Glass Lewis says results from the policy survey inform its case-by-case analysis of company circumstances in the research and filters that it provides to its global client base.
3. The policy gives insight into investors’ current views on several hot topics.
Here are a few takeaways on those hot topics related to compensation:
Make Whole Awards: Over the past year, use of the make-whole designation for U.S. sign-on awards has risen. Over half of all S&P 500 sign-on awards were identified as make-whole compensation this year, compared to 38% in 2024.
Non-investors were far more likely to view make whole awards as fundamentally different from other sign-on awards (40.8%, compared to just 5.3% among investors). Investors were split; while the top answer was to treat make whole grants on the same basis as other sign on awards (50%, compared to 27.6% among non-investors)), nearly as many were willing to view them differently so long as the grants are fully disclosed and clearly equivalent to what was forfeited (44.7%, compared to 31.6% among non-investors).
Time-Based Awards: U.S-based investors were far more open to the sole use of time-based awards as a part of the ongoing compensation structure so long as the practice was common with peers (43.5%, compared to 9.5% among investors from other regions) or as a retention measure (17.4% vs 9.5%). Meanwhile, investors from other regions appeared more likely to view them as a temporary stopgap, such was when the company is newly public (33.3%, compared to 13% among U.S. investors) or following a significant change in business strategy (38.1% vs 8.7%).
CEO Pay Ratio. To prepare for the possibility of reduced disclosures from the SEC regarding executive compensation, we asked for feedback on what elements of reporting are considered important to communicating and assessing U.S. executive compensation programs.
While most investor views were roughly aligned, there was a geographic split on the pay ratio, with 44% of U.S. respondents viewing it as not important, compared to just 8% among investors from other regions.
ISS Sustainability Solutions, the sustainable investment arm of ISS STOXX, announced updates to its Governance QualityScore for institutional investors last week. The updates introduce several new factors and extend existing factors to new markets. In addition to new factors that assess oversight of AI, four new questions for the U.S. market also address vesting periods for variable pay plans. Based on the detailed new Methodology Highlights (available for download), the new questions are:
What is the CEO vesting period for time-based options and/or stock appreciation rights? (Q475)
What is the CEO vesting period for time-based restricted stock? (Q476)
What is the CEO vesting period for performance-based options and/or stock appreciation rights? (Q477)
What is the CEO vesting period for performance-based restricted stock? (Q478)
At the same time, ISS announced a data verification period from November 10 to 21 during which companies can verify and submit changes to their data on all factors, new and old, before scores are made available under the updated methodology.
Yesterday, ISS announced that for companies with annual meetings between February 1, 2026 and September 15, 2026, its peer group review & submission window will open at 9:00 AM ET on Monday, November 10, and will close at 8:00 PM ET on Friday, November 21. Submissions should reflect peer companies used (or to be used) by the submitting company for pay-setting for the fiscal year ending prior to the company’s next upcoming annual meeting (so for your 2026 annual meeting, this would mean peers used for the 2025 fiscal year).
Here’s a reminder from the press release:
As part of ISS’ peer group construction process, on a semi-annual basis, corporations are requested to submit changes they have made to their self-selected peer groups for their next proxy disclosure. ISS considers companies’ self-selected peer groups as an important input as part of its own peer group construction methodology . . .
Companies that have made no changes to their previous proxy-disclosed executive compensation benchmarking peers, or companies that do not wish to provide this information in advance, are under no obligation to participate. For companies that do not submit any information, the proxy-disclosed peers from the company’s last proxy filing will automatically be factored into ISS’ peer group construction process.
Additional information on the ISS peer submission process, including links to ISS’ current recent peer selection methodology for the U.S., Canada, and Europe is available on the ISS website here.
We also shared some background info on constructing peer groups over the summer.
Last Thursday, ISS announced the launch of its comment period on proposed changes (shown in redlines) to its benchmark voting policies. During this open comment period, ISS gathers views from stakeholders (investors, companies, and other market participants) on its proposed voting policy changes for the next proxy season.
For 2026, comments are being sought on 19 proposed policy changes. Here is a summary of the executive compensation-related changes applicable to the U.S. market from the press release:
Non-employee director (NED) compensation practices – problematic high NED pay: Expands existing policy addressing problematic high NED pay practices, allowing for adverse vote recommendations in the first year of occurrence or when a pattern emerges across non-consecutive years.
Executive compensation – company responsiveness: In light of recent SEC guidance on Schedule 13G (passive) versus Schedule 13D (active) filing status for institutional investors, which may create legal uncertainties when companies seek to obtain feedback from shareholders, this proposed policy change allows more flexibility for companies to demonstrate responsiveness to low say-on-pay support.
Executive compensation – long-term alignment in pay-for-performance evaluation: Updates U.S. pay-for-performance quantitative screens to assess pay-for-performance alignment over a longer-term time horizon, considering a five-year period, compared to the current three years, while maintaining an assessment of pay quantum over the short term.
Executive compensation – time-based equity awards with long-term time horizon: This proposed policy update reflects the importance of a longer-term time horizon for time-based equity awards and represents a more flexible approach in evaluating equity pay mix in the pay-for-performance qualitative review.
Executive compensation – enhancements to equity plan scorecard: Adds a new scored factor under the Plan Features pillar to assess whether plans that include non-employee directors disclose cash-denominated award limits and introduces a new negative overriding factor for equity plans found to be lacking sufficient positive features under the Plan Features pillar.
The comment period opened yesterday and will run through 5 p.m. ET on November 11.
Comments received will be considered as ISS Governance finalizes the changes for its 2026 Benchmark voting policies, which will be announced in late November, and will generally be applicable for shareholder meetings taking place on or after 1 February, 2026.
I blogged earlier this week about annual incentive plan practices. These annual reviews are always interesting and helpful for benchmarking – but it’s important to acknowledge that the data lags actual trends, since it’s based on proxy statement disclosures of prior-year practices. As we know, a lot can change in one year!
This Equilar report takes a closer look at how things changed from 2023 to 2024, which may give more of a sense of the trend line as compensation committees start considering 2026 plans. Here are a few takeaways:
– 2024 saw a slight uptick in financial metric weighting. At the median in 2024, financial metrics made up 90% of the bonus plan, up from 85% in 2023, and 2024 also saw a corresponding downtick in non-financial weighting and prevalence. Market-based metrics (e.g., stock price) continue to be rarely used. The backlash against ESG/DEI metrics is a contributing factor to this small shift.
– Compared to 2023, 2024 saw a slight decline in individual performance usage (189 vs. 192). In terms of implementing individual performance, there was movement away from formal weightings and towards modifiers, mostly multipliers. For companies that weighted the individual performance component, weightings remained largely unchanged.
– On payouts, median corporate score factors in 2024 declined six percentage points at the median vs. 2023, and declined 7.1 percentage points on a total payout basis. The “corporate score” is the percentage achievement of goals – which corresponds to the payout. The decline in payouts could be due to overachievement of goals in 2023 that led to comparatively increased metric rigor in 2024.
– The use of discretion continued to decline from 2023 to 2024 – from 48 to 38 companies – compared to the surge that happened in the COVID years. In addition, one company in 2024 made an in-flight modification to the structure of their bonus plan, down from three in 2023.
– Circuit breaker usage declined from 37 companies to 36 from 2023 to 2024. In both years, a circuit breaker was triggered by three companies.
– Plans at 17 companies included a formal range of allowable discretion on the formulaic corporate score results, typically in the range of +/- 15% to 25%. This is distinct from other discretionary elements such as individual performance or discretionary metrics. In 2023, 16 companies included this feature in their plans.
The report also looks at common metrics. As you might guess, the biggest changes on that front are with ESG. Here’s more detail:
The prevalence of ESG metrics within formulaic plans was 32.7% in 2024 vs. 37.5% in 2023. Prevalence in this case only factors in metrics with a weighting or modifier effect and excludes ESG metrics embedded in individual performance or grouped strategic metrics. Within the subset of diversity metrics, there was a more dramatic decline from 12.2% of companies in 2023 to 7.4% in 2024. Lastly, the most dramatic decline occurred in diversity metrics with representation targets, which declined from 6.7% of companies in 2023 to 1.2% in 2024.
For companies that chose to retain diversity metrics in 2024, most eliminated any goals that could be interpreted as “quotas,” instead focusing on goals like diversity training, surveys on employee satisfaction and inclusion, and having diverse candidate slates for open positions. For companies that eliminated diversity metrics, most either shifted the weighting back to financial metrics or to a more general strategic goals metric covering various qualitative aspirations.
The Equilar study covers the largest 500 U.S. public companies by revenue, and was compiled using Equilar’s “IPAC” tool.
I blogged a couple weeks ago about using the information disclosed under Item 402(v) – the SEC’s “pay versus performance” rule – to structure compensation programs. This paper from ISS Corporate (available for download) also extols the benefits of statistical modeling for goal setting. Here’s an excerpt:
A goal-setting approach that incorporates statistical analysis can help ensure that goals are challenging but achievable and present payout opportunities that are fair for both executives and shareholders. By modeling incentive programs at the outset with statistical assumptions such as metric growth rate, volatility, and correlations, companies can better assess potential performance and payout levels according to their probabilities of achievement.
Such quantitative analyses may consider uncertainties including looming recession fears, unintended trade war repercussions or changing dynamics from the introduction of AI. A data-driven approach to goal setting, such as using Monte Carlo simulations, can aid in developing well-designed and rigorous incentive programs that won’t create problems down the road.
For compensation committees that aren’t already using modeling and think the “juice isn’t worth the squeeze,” the paper discusses how a data-driven approach can help avoid at least three pitfalls:
FW Cook recently published its annual incentive plan report – which reviews plans at the top 250 largest S&P 500 companies by market cap, based on 2024 practices disclosed in 2025 proxy statements. Here are a few key highlights:
• Plan Types: Formulaic annual incentive plan design with predetermined metrics and weightings remains the chosen approach by 93% of companies, aligning with shareholder and proxy advisor preferences.
• Financial Measures: Profit and revenue measures are the most prevalent and tend to account for the greatest weighting. Use of 2 or 3 financial metrics remains most prevalent, as this practice allows participants to address key business priorities without diluting management’s focus.
• Non-Financial Measures: A non-financial component is highly prevalent in annual incentive plans as a complement to core financial measures, with 80% of companies using a non-financial measure. While most ESG performance metric categories measured remain unchanged over the past 2 years, use of diversity & inclusion measures declined precipitously in the most recent year as companies have eliminated or rebranded these types of goals.
• Goal-Setting: Most companies continue to set more challenging target goals relative to prior year’s actual results.
The report gives supplemental details by sector – which are worth reviewing since practices can vary across industries. It also identifies the companies included in the study.