ISS published its policy updates for 2025 on December 17; Glass Lewis announced its updates in mid-November. The U.S. updates from both proxy advisors were incremental, in most cases simply clarifying and codifying existing practice. While we cover these updates later in this memo, the real news is not the policy updates for 2025 but rather ISS’s signals about what it might do in 2026 or 2027.
In its policy survey this summer, ISS sought input about whether it should maintain its current view in pay-for-performance evaluations that a predominance of performance-conditioned equity is a positive mitigating factor, and that a predominance of time-based equity is a negative exacerbating factor, irrespective of whether such awards have extended vesting periods of five years or more.
Forty-three percent of investor respondents indicated their preference to maintain the status quo. However, 31% of investor respondents — and 70% of non-investor respondents (i.e., issuers and academics) — supported a revised approach in which time-based equity with extended vesting periods would be considered a positive mitigating factor. In addition, ISS said recently that investors attending its policy roundtables — which tend to be ISS’s largest clients — “expressed nearly unanimous support” for a shift in the future for ISS to treat time-based equity more favorably, albeit with “differences in opinion on many of the details of how this could work.”
Our expectation is that ISS will work with its investor clients in 2025 to arrive at consensus on a policy shift for 2026 or 2027. That consensus may be that restricted stock units (RSUs) and stock options with vesting periods of five years or longer could be viewed as favorably by ISS as performance awards, or it could take a slightly different formulation.
In the meantime, ISS announced that it would evaluate performance programs more strictly in 2025, with a higher likelihood that any design flaws would contribute to a negative say-on-pay recommendation. Design concerns frequently cited by ISS include:
Compelling rationale that justifies a particular decision can often address these concerns. But “compelling” is in the eye — and under the furrowed brow — of the beholder.
ISS raising the topic of equity pay mix this year certainly heightens the prominence of the debate, but it has been a contentious issue ever since the Trouble Asset Relief Program of 2009 first mandated say-on-pay proposals for financial companies, even before the onset of mandatory say-on-pay proposals under Dodd-Frank for most companies in 2011. ISS and Glass Lewis decided early on that performance-conditioned equity, which was not common at the time, was preferable to RSUs and stock options (the latter of which had a bad reputation at the time from repricing and backdating scandals). Many in the corporate community have continued to consider standard stock options (i.e., those that are time-vested with an at-the-money exercise price) to be performance-based given that their value derives from an increase in stock price; however, the proxy advisors concluded that stock options reward increased volatility at least as much as sustained growth, and that lengthy exercise periods eventually make options valuable even at underperforming companies.
As performance equity became the norm throughout the 2010s, some investors developed concerns about over-reliance on performance equity programs that, in their view, tended to pay above target, had a ratcheting effect on the magnitude of executive pay at other companies, and did not incentivize performance and retention over a true “long-term” period. In 2017, Norges Bank Investment Management, the investment stewardship unit of the Norwegian sovereign wealth fund, published a position paper that began with two remarkable statements:
Calling for five-year vesting and the elimination of performance awards was certainly a contrarian view at the time. But by virtue of its assets under management and its leading voice among institutional investors, Norges Bank has gradually and quietly coaxed other asset managers to its way of thinking — and now leading investors are near-unanimous in their desire to see ISS treat options and restricted stock more favorably in the coming years.
ISS tweaked the factors that it assesses in evaluating short-term poison pills (those with a term of one year or less), to align with the factors that it already uses in practice. It will base its recommendations on the trigger and other terms of the pill, the rationale for adoption, the context in which the pill was adopted (e.g., activist threat, sudden swing in market capitalization), the presence of a commitment to put any renewal of the pill to a shareholder vote and the company’s track record on governance and shareholder responsiveness.
In the past four years, ISS has supported approximately two-thirds of poison pill management proposals (18 of 28); WTW does not expect this policy update to shift ISS’s recommendations much.
ISS has simplified its policy on extensions of special purpose acquisition companies (SPACs), to indicate that it will generally support one-year extensions, while examining other factors including any added incentives, business combination status, other amendment terms and, if applicable, use of money in the trust fund to pay excise taxes on redeemed shares. This update codifies ISS’s current practice and streamlines its policy in the wake of a proliferation of “zombie SPACs” with minimal funds remaining.
In 2024, ISS supported only 14% of proposals to extend the life of a SPAC (24 of 176). This policy update could increase ISS’s rate of support for these proposals.
ISS has amended its general policy on environmental shareholder proposals to examine more closely the alignment of a company’s disclosures, policies, and procedures with relevant reporting frameworks, such as the Task Force for Nature-related Disclosures and the Global Biodiversity Framework.
ISS also issued several updates in mid-December through its compensation FAQs and equity plan FAQs. ISS reiterated that it does not consider Dodd-Frank clawback policies to be robust; it prefers to see a second clawback policy that applies to all equity compensation, not just incentive-based compensation.
ISS’s realizable pay calculation will see some changes in 2025, to use the value of actual short-term and long-term incentive payouts, where available, instead of target amounts.
Finally, ISS made its annual updates to the burn rate benchmarks it uses in its equity plan evaluations. The movements are a mixed bag — 32 industry benchmarks increased, 16 decreased, and 9 were unchanged.
Glass Lewis clarified its executive compensation policy discussion to emphasize two points, neither of which move the needle much:
Glass Lewis adopted a new policy stating that if a company has insufficient oversight of artificial intelligence (AI) that results in a material negative financial impact to the company, it will recommend against the re-election of the directors most accountable for AI oversight.
During this season of relative calm before a possible storm, WTW offers four key takeaways from the proxy advisor policy announcements.
