ISS and Glass Lewis Benchmark Policy Updates for the 2026 Proxy Season

Both Institutional Shareholder Services, Inc. (ISS) and Glass Lewis & Co., Inc. (Glass Lewis) recently released updates to their proxy voting guidelines, which will generally apply to shareholder meetings on or after February 1, 2026, for ISS, and on or after January 1, 2026, for Glass Lewis. The changes include several important developments in executive compensation policy, which are summarized below. Decision-makers at public companies should begin reviewing these changes now to determine whether these changes should impact their compensation programs and/or compensation disclosures ahead of the 2026 proxy season.

ISS Changes

1. Non-Employee Director Pay

Previously, ISS’s policy provided that it will recommend voting against members on the board committee that sets non-employee director compensation if there is a multi-year pattern (over two or more consecutive years) of approving non-employee director pay that is “excessive.” ISS’s updated policy broadens the potential situations that may lead to a vote against recommendation as follows:

• The multi-year pattern does not need to be consecutive.
• ISS will consider excessive pay as well as “problematic pay,” such as performance awards, retirement benefits, or perquisites.
• Particularly egregious pay practices in any single year may result in an adverse vote recommendation, even without a multi-year pattern.

Companies that are worried that they may have provided non-employee directors with compensation that ISS could view as “excessive” or “problematic” should ensure they provide clear and compelling disclosure in the proxy statement regarding the rationale for providing such compensation to minimize the likelihood of a “vote against” this year given the removal of the multi-year pattern requirement and additional “problematic pay” considerations.

2. Equity Plan Scorecard Changes 

ISS’s Equity Plan Scorecard (EPSC) is used to evaluate its vote recommendation on new or amended equity plans. The scorecard has three major “pillars,” and companies get points for how well they score on each pillar: 

1. Plan Cost, which considers the number of shares that can be issued under the plan.
2. Plan Features, which gives points for having ISS-desired provisions in the new or amended plan.
3. Grant Practices, which generally considers the vesting terms, sizes, and other terms of awards made in prior years. 

In most cases, a passing score results in ISS recommending shareholders vote for the proposal unless there is a “negative overriding factor,” which results in an automatic “vote against” recommendation, regardless of score. “Negative overriding factors” have historically been limited to provisions that ISS considers to be especially egregious, such as having an evergreen plan that automatically replenishes the share reserve without shareholder approval. 

There are two significant changes to the EPSC this year:

• A cash-denominated award limit for non-employee directors is a new positive “Plan Feature.”
• A new “negative overriding factor” was added, which reads as follows: “the plan lacks sufficient positive features under the Plan Features pillar.”  ISS noted in the update that it has identified numerous cases where plans had a passing score even with a “poor” Plan Features score, which is why it is adding this as a new negative overriding factor. However, it is unclear what a “poor” score means, which may make it difficult to evaluate when this overriding factor would apply in practice. Any company that cares about ISS’s recommendation on its equity plan proposal should be careful to err on the side of caution when determining which Plan Features to include in their plan.

3. Pay-for-Performance Evaluation

For many years, ISS has assessed company pay and performance alignment in its say-on-pay evaluation using a two-step process: first, all companies are put through a “quantitative screen,” which compares CEO pay to a company’s total shareholder return (TSR) performance (both relative to the company’s peer group and on an absolute basis); and second, companies that do not “pass” the quantitative screen undergo a qualitative evaluation. ISS has made two changes to this process:

• The peer group comparison portion of the quantitative screen was previously measured over a three-year period, but is being extended to five years, with the stated goal of better capturing sustained value creation and smoothing out short-term market or corporate performance fluctuations.
• The companies undergoing the qualitative screen were generally penalized for having a large portion of incentive awards weighted towards time-based vesting. Responding to investor feedback, ISS will be more flexible in how it views the mix of time-based and performance-based vesting awards, provided that the time-based awards have extended vesting or retention periods that demonstrate a genuine long-term focus. While the qualitative analysis applies to relatively few companies each year, this increased flexibility will be welcomed for those impacted.  

4. Company Responsiveness to Low Say-on-Pay Support

Previously, ISS policy provided for negative say-on-pay recommendations if a company’s prior year’s say-on-pay vote received less than 70% support unless the company included in its proxy a description of its engagement with investors and actions taken in response to the failed vote. This policy did not provide for any flexibility when a company tried, but was unsuccessful, to garner shareholder feedback. Particularly as a result of recent SEC guidance on Schedule 13G vs. Schedule 13D filing status that may make passive investors less likely to engage with issuers, the updated policy clarifies that if the company discloses that it made meaningful efforts to engage with shareholders but was unable to obtain any specific feedback, then ISS will not automatically recommend against the say-on-pay vote in the following year if the company still makes substantive pay program changes and provides reasoned explanations as to why the changes were made (even though such changes did not come out of engagement with investors). 

Glass Lewis Changes

The only significant change to the Glass Lewis executive compensation benchmark policies relates to its pay for performance evaluation. Previously, Glass Lewis assigned a single letter grade (A-F) for a company’s pay versus performance alignment. Glass Lewis is now switching to a scorecard approach that grades a company between 0-100 based on combined scores from six tests (and each test is generally measured over five years): 

1. Granted CEO pay vs. TSR
2. Granted CEO pay vs. other sector-specific financial metrics
3. CEO short-term incentive payouts vs. TSR 
4. Total Granted NEO Pay vs. sector-specific financial metrics
5. CEO compensation actually paid vs. TSR
6. A qualitative test that considers if any problematic features were included in compensation (e.g., upward discretion exercised, one-off awards granted, fix pay being greater than variable pay, excessive or unlimited maximum incentives, performance goals not disclosed, and short vesting period for LTI).