Proxy advisory firms are keeping busy this summer. Glass Lewis has announced substantial changes to its North America pay-for-performance methodology, while ISS has launched its annual benchmark policy survey — and both have initiated legal action against Texas. Here, we break down the details of each of these moves.
Glass Lewis updates to 2026 pay for performance methodology
Taking effect Jan. 1, 2026, the revised pay-for-performance framework that Glass Lewis has released features a scorecard comprised of six pay-practices tests, five quantitative and one qualitative, covering an extended five-year period.
In addition to the extended coverage, the new methodology will also incorporate compensation actually paid (vs. total shareholder return) and move from the legacy letter grades to tiered levels of concern (e.g., severe concern, high concern). This new scorecard approach will evaluate pay and performance alignment by reviewing grant-date pay; that is, for example, legacy relative tests that cover:
- CEO pay vs. total shareholder return (TSR)
- CEO pay vs. financial metrics
- Aggregate named executive officer (NEO) pay vs. financial metrics
- CEO annual incentive payouts vs. TSR (measured over five one-year periods)
- CEO compensation actually paid (CAP) vs. TSR
These tests will be supplemented by evaluation of qualitative pay practices and weighted into a scaled concern level based on a zero-to-100 numerical system, replacing the legacy A-F grading system (Table 1). While the concern-level details have not been released, it is possible that the number scaling will resemble the prior performance ranges for each letter grade.
Table 1. Pay-for-performance legacy methodology vs. newly introduced methodology
| Legacy methodology | New 2026 methodology | |
|---|---|---|
| Scoring | Letter grade A-F Pay-performance differential: A = >60 to 100 B = >25 to <60 C = >-15 to <25 D = >-45 to <-15 F = -100 to <-45 |
Tiered concern based on zero-to-100 numerical system |
| Tests | Relative test measuring CEO pay and aggregate NEO pay vs. TSR and financial metrics | Six tests covering grant date pay, CEO annual incentive payouts, CEO CAP, and quantitative considerations |
| Periods covered | Three-year period (three one-year weighted periods) | Five-year period (generally one-year weighted average periods; minimum of three years) |
| Performance metrics | Operating cash flow, EPS growth, ROE, ROA, TSR (industry variability may apply) | Same + revenue growth (industry variability may apply) |
| Peer group | Glass Lewis-selected 15 companies | Glass Lewis-selected 15 companies (minimum 10 with three consecutive years of pay/TSR/financial data for tests to apply) |
Glass Lewis notes that no concern level will trigger an automatic vote recommendation; rather, decisions will be made case by case. We anticipate the firm will share high-level FAQs, with additional details becoming available as the first analyses are completed and as the Glass Lewis Corporate Solutions modeling tools become fully available.
ISS launches its 2025 Annual Global Policy Benchmark Survey
ISS released its annual global policy survey (for 2026 policy updates) on July 23 and is accepting submissions until mid-August. In addition to soliciting input from investors and the corporate community on a broad range of topics, the survey also serves as the market’s first indication of areas in which ISS may modify its voting policies for the upcoming year.
Among the full list of questions, four compensation topics feature prominently in this year’s survey for North America. Issuers (i.e., management and compensation committee members) should be aware of these topics and stay apprised of further policy formulation developments this fall.
UK hybrid equity programs
This year’s survey only includes one topic not applicable to U.S. companies: Whether it is acceptable for UK companies to adopt hybrid equity programs that include both time-based and performance-based awards — even if these hybrid programs are associated with an increase in overall compensation. This question appears on the survey as officer remuneration programs at UK companies move closer to U.S.-style compensation in both structure and magnitude.
Topics in board structure and shareholder rights
Apart from compensation ISS is seeking input on:
- The appropriate number of boards on which an individual can serve before they become “overboarded”
- The manner in which firms approach board diversity and diversity, equity and inclusion (DEI)
- Whether super-voting preferred shares should be evaluated the same way as super-voting common shares
- Several topics related to shareholder proposals
Regarding the last bullet, notably, ISS appears to be entertaining the notion of taking a tougher stance against shareholder proposals that are not accompanied by detailed, company-specific arguments.
ISS will consider survey responses as it formulates draft policy updates for 2026, which should open for comment in October or early November. We expect ISS to issue final policy updates for 2026 in late November or early December.
At the time of this article's publication, Glass Lewis had just announced its own policy survey. The compensation-related topics cover areas like executive pay levels, director pay, board consideration of tariffs, performance- vs. time-based awards, and equity plan considerations. We will monitor the results of this survey and any potential policy changes that Glass Lewis considers.
ISS and Glass Lewis file complaint against Texas attorney general
Both proxy advisory firms filed legal complaints on July 24, 2025, in the U.S. District Court for the Western District of Texas against the state’s attorney general. The complaints seek to have Texas S.B. 2337 declared unlawful and an injunction placed against its enforcement.
Passed by the Texas legislature and set to become law on Sept. 1, 2025, S.B. 2337 is designed to help attract companies to relocate to and incorporate in the state of Texas. The bill holds the premise that any advice on a proxy proposal that is in any way based on an ESG factor is not being made in the financial interest of a company’s shareholders.
Essentially, the bill suggests that corporate governance is not and cannot be a material consideration for a company’s shareholder. The bill mandates that the routine advice on these factors includes a warning notice to clients that the advice is not solely in the financial interest of the company shareholders because it is based wholly or partly on one or more non-financial factors.
Further, S.B. 2337 requires a warning notice to clients, companies and the Texas attorney general whenever different advice is given to different clients or when any recommendations do not align with management’s recommendations. The requirements hold that the proxy advisor must say which of the conflicting pieces of advice was provided solely in the financial interest of shareholders.
At issue for proxy advisors and institutional investors is the potential chilling effect on custom voting policies, a standard and best practice widely used by asset managers. Both proxy advisory firms assert that S.B. 2337 compels speech and violates the First Amendment’s prohibition on content and viewpoint discrimination. ISS and Glass Lewis have noted that their institutional clients are sophisticated investors capable of making their own decisions and warn that the required disclosures could lead to client losses and damaged reputation.
We will continue to monitor these activities and keep our clients and broader executive compensation professionals updated.
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