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.
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:
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.
| 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 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.
01
During the 2024 policy formulation cycle, ISS explored the idea of putting certain time-based equity awards on the same favorable footing as performance-based awards. Although it did not act at the time (citing a lack of investor consensus on which awards to treat favorably), ISS signaled that it would continue to work with investor clients on a potential policy update. We published a deep dive on this debate within the investor community in late 2024.
Momentum for a policy shift in this area continues. At the U.S. Securities and Exchange’s (SEC’s) June 2025 roundtable on executive compensation, Norges Bank — the foremost proponent of a shift toward long-vesting time-based awards — had a prominent speaking role and pressed this point repeatedly without significant opposition.
ISS’s policy survey contains a surprising seven questions on this topic, with some aimed at a global audience while others are aimed specifically at the U.S. market. The questions solicit input on:
The depth of inquiry on this topic demonstrates that this is ISS’s primary focus regarding compensation. If investor perspectives do not align on a path forward, we expect ISS to seek alignment in client roundtables in the second half of 2025. Although it would be premature to modify equity arrangements in anticipation of an ISS policy update, compensation committee members should stay tuned for developments in this area.
02
If a company’s say-on-pay proposal receives the support of less than 70% of votes cast, ISS evaluates the company’s responsiveness in the next proxy by assessing:
This year, the second prong of ISS’s policy became more difficult for many companies to satisfy. SEC staff guidance issued in February 2025 announced to investors that if they tied opposition to any director elections to compensation, governance or other non-financial matters, they would have to file a long-form Schedule 13D for active investors seeking to influence or change control of a company (rather than the previously used short-form Schedule 13GT for passive investors).
This guidance has chilled institutional investors’ willingness to engage with companies on compensation and governance topics. Some investors no longer respond to outreach, while others decline to provide substantive information on engagement calls.
In response, this year’s survey asks: When a company discloses that it could not obtain feedback after attempting to engage with shareholders, should the company be viewed as having satisfied that second prong of ISS’s responsiveness policy? ISS also is seeking input on whether pay-program changes can be considered adequately responsive, even in the absence of disclosed feedback.
Together, these questions suggest that ISS may be open to softening its responsiveness policy considering the more challenging engagement landscape. The survey does not ask whether ISS should change its responsiveness threshold.
As noted, the firm currently examines responsiveness at companies that received less than 70% support for its previous say-on-pay proposal (5.6% of the Russell 3000 companies in 2025), whereas Glass Lewis evaluates it for any company that received less than 80% support (11.2% of Russell 3000 companies in 2025).
03
ISS states that a small number of companies have removed environmental and social goals (E&S) from an incentive award during the award’s performance period, citing the changing political climate and other risks. The survey asks whether ISS should continue to view such in-flight changes negatively, absent a compelling rationale or is the mid-cycle removal of E&S goals acceptable in the absence of other concerns.
The survey question does not pertain to the large number of companies that remove or modify E&S goals in a subsequent incentive award, only those that modify or remove them from an in-flight award.
04
For the past several years, ISS has issued negative recommendations if a non-executive director has excessive pay for two consecutive years without a compelling justification. In this year’s survey, ISS notes that it does not act on many one-year spikes in pay because of its two-year policy. It also asks participants about director pay practices that would be problematic enough to warrant negative recommendations in the first year.
The survey seeks input specifically on inadequate disclosure for unusual payments, excessive perquisites, performance awards, stock options, retirement benefits, and pay magnitude that exceeds executive officers’ pay. The survey does not ask whether ISS’s threshold for determining director pay to be excessive should change. Currently, ISS evaluates whether any director’s compensation is in the top 1% of directors at companies in the same industry and index.
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.
Apart from compensation ISS is seeking input on:
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.
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.
