ISS Releases Executive Compensation and Equity Plan Policy Updates for the 2025 Proxy Season

Institutional Shareholder Services (ISS) has released its executive compensation and equity plan policy updates for the 2025 proxy season, reflecting its approach to determining its proxy voting recommendations on say on pay and equity plan proposals for shareholder meetings held on or after February 1, 2025.

The updates to ISS’s existing policies are fairly light overall, but it is notable that there will be heightened scrutiny of the design and disclosure of performance-vesting equity awards, due to what is described as increasing investor concerns with the potential pitfalls surrounding performance equity programs.

Executive Compensation Policy Updates

The updates to the executive compensation policy FAQs include the following:

Performance Vesting Equity Programs: In FAQ 34, the most significant update, ISS states that it will increase its focus on the design and disclosure of performance-vesting equity awards, especially for companies with a qualitative pay-for-performance misalignment. Issues that may contribute to an adverse voting recommendation, particularly if multiple apply, include:

• Non-disclosure of forward-looking goals (retrospective disclosure of goals at the end of the performance period will carry less mitigating weight than previously);
• Poor disclosure of performance cycle vesting results;
• Poor disclosure of the rationale for metric changes, metric adjustments or program design;
• Unusually large pay opportunities, including maximum vesting opportunities
• Non-rigorous goals that do not appear to strongly incentivize for outperformance; and/or
• Overly complex performance equity structures.

Equity Compensation Plan Policy Updates

In what may be good news for those taking an equity plan for shareholder approval in 2025, ISS’s [equity plan FAQs](https://www.issgovernance.com/file/policy/active/americas/US-Equity-Compensation-Plans-FAQ.pdf?ref=compensation-in-context.ghost.io) include no updates, confirming in FAQ 30 that “for 2025, there are no new factors, and no changes to factor weightings or passing scores for any of the Equity Plan Scorecard models.”

Takeaways

US public companies preparing for the 2025 proxy season, especially those largely held by institutional shareholders, should take note of ISS’s policies and the key updates to the executive compensation policies, particularly when drafting disclosures regarding performance-vesting equity awards and other incentive programs.

Those taking equity plans for shareholder approval can enjoy a respite from new ISS policy requirements this year, but will still need to carefully navigate the overall plan design, drafting and disclosure process to ensure a smooth run through proxy season and, ultimately, a successful outcome.