ISS final voting policy updates: Key implications for the 2026 proxy season 

Background

As part of its annual policy development process, ISS sought input from companies, institutional investors, directors, and other stakeholders to understand their views on, among other things, several pay and governance topics (see Proxy advisors gear up for 2026: ISS launches policy survey, Glass Lewis previews methodology changes). ISS released the survey results in September (see ISS releases results of annual global policy survey) and proposed updates on Oct. 30 (see ISS voting policy and QualityScore proposed updates impact executive and director pay, and E&S proposals).

Executive compensation

Performance- vs time-based equity awards. To reflect evolving investor views, ISS will take a more flexible approach to its evaluation of equity pay mix in its pay-for-performance (P4P) qualitative review. Currently, ISS expects a majority of equity grants to have performance-based vesting. The drawbacks of this approach were discussed at the SEC’s June roundtable where some panelists expressed concerns that long-term incentive programs had become too “one-size-fits-all” in order to satisfy proxy advisor guidelines (see SEC roundtable: SEC lays the groundwork for significant changes to executive pay disclosure).

Under the updates, ISS will continue to evaluate a company’s equity program case by case in the context of company-specific factors and will view well-designed and clearly disclosed performance equity plans as a positive factor. But, under the more flexible approach, time-based awards with extended time horizons will also be viewed positively. The updates don’t expand on what ISS will view as an acceptable time horizon, but the proxy advisor could publish FAQs with more specifics or take a case-by-case approach. The most popular survey choice among investor respondents (31%) was three-year vesting plus at least a two-year post-vesting retention requirement. Separately, there’s no change to the CEO vesting factor in the grant practices pillar of the equity plan scorecard (EPSC), under which plans earn points if at least 50% of CEO grants are performance-based.

Say-on-Pay (SOP) responsiveness. ISS assesses compensation committee responsiveness when a company receives low SOP support (less than 70%) by reviewing proxy disclosure of shareholder engagement efforts, including feedback received and how the company responded. Failure to respond can trigger a negative SOP vote recommendation the following year. However, 2025 SEC staff guidance has made 5% shareholders more cautious when they engage with companies because they could lose their status as “passive” vs “active” investors. Recognizing this, if companies are unable to engage with shareholders, ISS will instead assess company actions in response to the low vote if the company discloses meaningful engagement efforts, states it was unable to obtain specific feedback, and explains why such actions benefit shareholders. In addition, the update clarifies factors ISS will consider (e.g., board turnover) when there is low SOP support in connection with unusual circumstances (e.g., proxy contests, mergers, or bankruptcy).

Long-term alignment in P4P evaluation. To better align with how investors assess a company's long-term performance when evaluating compensation relative to peers, the updates will lengthen the time horizons for three of ISS’s four P4P quantitative screens:

• Relative Degree of Alignment (RDA). The degree of alignment between the company's annualized total shareholder return (TSR) rank and the CEO's annualized total pay rank within a peer group, will each be measured over a five-year period (vs a three-year period).
• Multiple of Median (MOM). The multiple of the CEO's total pay relative to the peer group median will be measured over one- and three-year periods (vs the most recent fiscal year).
• Financial Performance Assessment (FPA). The rankings of CEO total pay and company financial performance within a peer group will be measured over five years (vs three years).

There’s no change to the Pay-TSR Alignment (PTA) screen, which already has a five-year time horizon. ISS believes the longer time horizons will help assess sustained value creation and better smooth out short- to mid-term fluctuations, unusual one-time events, and external factors ― while also maintaining an assessment of pay quantum over the short term.

The longer time horizons could resurface P4P issues from four or five years ago (e.g., high CEO pay and poor TSR performance) that would have been excluded under the three-year horizons. So, companies should simulate ISS’s P4P assessments using the new time horizons and look at older proxy reports to see the pay figures ISS used for those years.

Excessive non-employee director pay

Under the updates, ISS will recommend voting against members of the board committee that approves director pay for unreasonable or problematic non-employee director pay in the first year of an occurrence or in the event of a pattern identified across non-consecutive years absent a compelling rationale or other mitigating factors. This will supplement ISS’s current policy to issue adverse vote recommendations only if there are issues for two consecutive years without a compelling rationale (cautionary language in proxy reports is provided in the first year).

ISS will continue to identify companies with outlier non-executive director pay by comparing pay levels to those of other companies within the same index and 4-digit GICS industry group. Providing directors with excessive pay, problematic perquisites, performance awards, or retirement benefits will each be a problematic pay practice although the identification of one of these practices won’t guarantee an adverse recommendation. For example, pay identified as marginally exceeding the relevant threshold in the absence of other escalatory factors or a multi-year pattern will continue to receive only a warning.

Equity plan scorecard

The updates include two changes to how ISS evaluates equity plan proposals under its EPSC:

• There will be a new scored factor under the plan features pillar to assess whether plans that cover non-employee director awards disclose cash-denominated award limits. Limits help companies defend against lawsuits charging excessive director pay and are considered best practice. For 2026, the factor will apply only to the S&P 500 and Russell 3000 EPSC models.
• There will be a new negative overriding factor where ISS will automatically recommend voting against an equity plan proposal if the plan lacks sufficient positive features under the plan features pillar, despite an overall passing score. For 2026, the factor will apply only to S&P 500, Russell 3000, and non-Russell 3000 EPSC models.

Positive plan features are: transparent disclosure around change-in-control vesting; prohibiting discretionary vesting; prohibiting liberal share recycling; requiring minimum vesting periods; prohibiting paying dividends (or equivalents) unless and until an award vests; and including cash-denominated award limits for non-employee directors.

Environmental and social (E&S) shareholder proposals

ISS will replace its current policy to generally support certain E&S-related shareholder proposals (unless specific conditions warrant otherwise) with a fully case-by-case approach. The four categories of E&S-related shareholder proposals that will be affected are diversity and equal opportunity, political contributions, human rights, and climate change/greenhouse gas emissions.