Proxy advisory firms Institutional Shareholder Services (ISS) and Glass Lewis have published their final policy updates for 2026. ISS’s updates include substantial changes to its U.S. compensation policies—perhaps the most sweeping set of updates since the onset of say on pay 15 years ago.
Following is a summary of these changes, which are consistent with the draft policies that ISS published in October. We also provide our perspective on how these updates may inform compensation committees’ decision-making in 2026 and beyond.
01
Time-based equity awards with long-term vesting periods or holding periods will be viewed positively. For the first time in the say-on-pay era, an award does not need to carry performance vesting conditions for ISS to view it favorably.
ISS did not define “long term” in its announcement. The absence of any bright-line guidance allows ISS to take a flexible approach in its assessment of equity pay mix. Because most performance-based equity cliff vests after three years, “long-term” here most likely means four or more years.
Given the results of ISS’s policy survey this summer, and policies used by ISS outside of North America, we expect that ISS will count not only vesting periods but also post-vest holding periods in determining whether an award is “long-term” in nature.
ISS also did not define “positively,” and we expect that there will be nuance on this point. In the most straightforward example, we expect that restricted stock or options with five-year cliff-vesting will generally be viewed as favorably as three-year performance awards.
What is less clear is how favorably ISS will view other flavors of “long-term.” What about four-year vesting instead of five? Or three-year vesting plus a two-year holding requirement? How will annual ratable vesting (one-fifth per year in years one through five) or backloaded ratable vesting (one-third per year in years three, four, and five) impact ISS’s view?
We expect ISS to treat these variations differently in its analysis, and there’s no longer a simple bright-line test at ISS between “favorable” awards and “unfavorable” awards.
This update represents an enormous opportunity for companies that are comfortable extending the vesting or holding restrictions beyond three years on restricted stock, restricted stock units, stock options and stock appreciation rights granted to its named executive officers.
In response to pressure from Norges Bank and other shareholders, ISS has given companies an additional lever they can use to deliver balanced, customized compensation to key personnel while bolstering support for say-on-pay proposals.
Although ISS still expects to see well-designed performance awards comprise some portion of executives’ equity pay mix, companies that are unable to produce reasonably informed long-term forecasts or that prefer other equity vehicles can decrease their reliance on performance awards in favor of long-term time-based awards. As always, any changes in equity pay mix should be accompanied by clear CD&A disclosure explaining the shift, its context, and the benefits for shareholders.
Later this month, ISS’s annual FAQ document may shed some additional light on how it will implement this policy update.
02
ISS is moving to longer time horizons in three of its four screening tests. The Relative Degree of Alignment (RDA) test will now examine five years of CEO pay and performance instead of three, as will the Financial Performance Assessment (FPA) test. The Multiple of Median (MOM) test will look at not only the existing one-year period but also at a three-year period. The Pay-TSR Alignment (PTA) test is already a five-year screen and will not change.
These modifications to the ISS pay-for-performance screening do not constitute the kind of overhaul that Glass Lewis has announced. ISS is using the same tests, same scoring system, and same peer selection methodology. That said, in the immediate term, the changes that ISS has announced will impact some companies more favorably than others.
For instance, because ISS’s RDA test will now examine TSR performance from 2021 through 2025, companies whose stock prices bounced back quickly after the onset of the COVID pandemic may fare more poorly than companies that took longer to recover from pandemic-related disruptions, because their stock prices in January 2021 — the new start date in ISS’s RDA test for most companies’ 2026 meetings — were in very different places.
03
The 2026 update eliminates the requirement to show specific shareholder feedback, if the company states that it was unable to obtain feedback, and provides adequate disclosure of its outreach attempts and any compensation program changes that are beneficial for shareholders. Significant board turnover may also be a mitigating factor after low support in connection with a merger or proxy contest.
This is another instance of ISS’s policy becoming more flexible in response to shifting corporate governance dynamics (in this case, the SEC Staff’s February 2025 guidance limiting investors’ Schedule 13G eligibility on the basis of engagement with portfolio companies). ISS’s responsiveness policy has historically looked for three things after a low say-on-pay vote: outreach, shareholder feedback, and changes. This update obviates the second prong as long as companies satisfy the other two prongs. Companies should continue to conduct outreach efforts after a low say-on-pay vote, but will now have cover from ISS if shareholders decline to engage, or if they decline to provide instructive feedback.
ISS is not changing its 70% support threshold for determining whether responsiveness is warranted.
04
ISS’s policy already considers realizable pay compared to granted pay where relevant; going forward, ISS may also compare realized pay to granted pay. (Realizable pay generally incorporates the value at the end of a fiscal year of outstanding awards that a recipient could receive in the future, whereas realized pay incorporates the value of awards paid out during the fiscal year.)
There is no explicit indication that ISS will rely on compensation actually paid (CAP) or other elements of the SEC’s mandatory Pay-Versus-Performance disclosure, but we believe it is a possibility in some cases.
05
In exceptional circumstances involving a highly problematic director compensation arrangement without a compelling rationale, ISS may issue adverse recommendations immediately against the directors most responsible for approving director pay (often compensation committee members).
This policy change only reaches the most exorbitant director pay arrangements and tends to involve high pay to executive chairs or a founding director, rather than high pay to an independent director. ISS’s existing Excessive Director Pay policy, which examines whether any non-employee director has received pay in the top percentile of director pay at similar companies for two or more years, will continue in effect, although it will now also capture patterns of excessive director pay that occur in non-consecutive years and signal a more immediate response in highly concerning cases.
06
There is a new “deal-breaker” factor in ISS’s Equity Plan Scorecard, by which ISS will recommend against an equity plan if its governance provisions, in aggregate, are not sufficiently shareholder-friendly. There is also a new scored factor examining whether an equity plan contains annual award limits for non-employee directors that are stated in dollar values.
ISS scores several governance provisions in an equity plan, including how the plan handles liberal share recycling, dividends on unvested awards, discretionary authority to accelerate awards, and minimum vesting periods, and now whether the plan’s limit on annual director awards is specified in dollar terms rather than a number of shares.
More broadly, ISS has not been aligned with its investor clients for many years on equity plan proposals. ISS recommends against 30% of equity plan proposals, whereas investors decline to give majority support to fewer than one percent of proposals. These updates stand to further widen this divide.
In Canada, the only compensation-related policy updates from ISS are related to equity plan proposals: one update clarified that plans must require shareholder approval for repricings; the other update is that plans must state that deferred share units to directors may only be granted in lieu of cash fees, and on a value-for-value basis.
Outside the sphere of compensation, the most notable ISS update affecting North American companies is that ISS is moving to a case-by-case approach on environmental and social shareholder proposals, with a new emphasis on “whether the proposal addresses substantive matters that may impact shareholders’ interests.”
ISS typically publishes FAQ documents between mid-December and mid-January with additional detail on its policy updates and other more minor changes affecting its evaluations.
Glass Lewis has also published its policy updates for 2026. Its new benchmark voting policies do not contain any significant compensation-related updates for North American markets, but it previously made some major announcements: It is overhauling its pay-for-performance screening methodology for 2026, and it will no longer publish its benchmark vote recommendations starting in 2027.
We will continue to keep readers apprised of updates and additional guidance from the proxy advisors. Contact your WTW team with any questions or to discuss the potential implications of these policy updates for your company.
