ISS Updates 2025 Benchmark Voting Policy and Executive Compensation FAQ

2025 Benchmark Voting Policy Updates

Institutional Shareholder Services updated its Benchmark proxy voting policies on December 17—with updated policies generally applying to shareholder meetings taking place on or after February 1.

The updates for U.S. companies, which are light, are briefly summarized below.

Poison Pills

ISS changed which factors it will consider when voting on director nominees where the board has adopted an initial short-term pill (with a term of one year or less) without shareholder approval. The list no longer includes specific consideration of the company’s market capitalization (including absolute level and sudden changes).

The revised list includes the following factors:

• The trigger threshold
• [New] Other terms of the pill
• The disclosed rationale for the adoption
• [Updated] The context in which the pill was adopted (e.g., factors such as the company’s size and stage of development, sudden changes in the company’s market capitalization, and extraordinary industry-wide or macroeconomic events)
• A commitment to put any renewal to a shareholder vote
• [Updated] The company’s overall track record on corporate governance and responsiveness to shareholders
• Other factors as relevant

In rationalizing the changes, ISS explains that analysts already consider the additional factors under the category of “other factors as relevant,” and that the updates are merely to increase transparency by specifically identifying these factors. ISS also notes that it is not, at this time, making any changes to its policy for when a board is adopting a long-term pill without shareholder approval, or when a pill is submitted to shareholders for approval or ratification.

Proposals for SPAC Extensions

ISS will now generally support requests to extend a Special Purpose Acquisition Company’s termination date up to one year from its original termination date (inclusive of any built-in extension options, and accounting for prior extension requests). Previously, ISS would vote on these proposals on a case-by-case basis. ISS will also consider:

• Any added incentives, business combination status, or other amendment terms
• Use of money in the trust fund to pay excise taxes on redeemed shares, if applicable

ISS notes that the update codifies its present approach to SPAC extension recommendations. The change appears to be driven by what ISS identifies as a proliferation of “zombie SPACs” seeking extensions to their termination dates, sometimes on multiple occasions and for multiple years. ISS notes that it may consider multiple extension requests so long as they do not collectively exceed one year in total.

Natural Capital-Related and/or Community Impact Assessment Proposals

The 2025 updates replace the reference to “General Environmental Proposals and Community Impact Assessments” with the updated reference to “Natural Capital-Related and/or Community Impact Assessment Proposals.”

ISS will consider a slightly different list of factors when voting requests for reports on policies and/or the potential (community) social and/or environmental impact of company operations. The revised list includes the following factors:

• [Modified] Aligning current disclosure of applicable policies, metrics, risk assessment report(s), and risk management procedures with relevant, broadly accepted reporting frameworks
• The impact of regulatory non-compliance, litigation, remediation, or reputational loss that may be associated with failure to manage the company’s operations in question, including the management of relevant community and stakeholder relations
• The nature, purpose, and scope of the company’s operations in the specific region(s)
• The degree to which company policies and procedures are consistent with industry norms
• The scope of the resolution

The changes come in response to the recent increase in shareholder proposals focused on biodiversity and other connected environmental topics such as deforestation and water pollution, as well as the development of disclosure frameworks such as the Taskforce on Nature-related Financial Disclosures (TNFD).

Updated FAQs on Executive Compensation Policies

ISS also updated its FAQ on executive compensation policies this month (as promised in an off-cycle update that occurred last October). The new and materially updated questions, which are briefly summarized below, are highlighted in yellow in the FAQ. FAQ 46, which addresses when a clawback policy is considered “robust,” is highlighted in the December update, but remains unchanged from the off-cycle October update.

Computation of Realizable Pay

The realizable pay chart will not be displayed for companies that have experienced two or more CEO changes within the three-year measurement period, according to updated FAQ 24.

Pay-for-Performance Qualitative Review

Beginning with the 2025 proxy season, ISS will place greater focus on performance-vesting equity disclosure and design aspects, particularly for companies that exhibit a quantitative pay-for-performance misalignment, according to new FAQ 34. The changes come in response to increasing investor concerns about the potential pitfalls surrounding performance equity programs.

Typical considerations will include the following (and multiple concerns identified will be more likely to result in an adverse vote recommendation in the context of a quantitative pay-for-performance misalignment):

• Non-disclosure of forward-looking goals (note: retrospective disclosure of goals at the end of the performance period will carry less mitigating weight than it has in prior years)
• Poor disclosure of closing-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
• Overly complex performance equity structures

Evaluation of Incentive Program Metrics

Updated FAQ 39 provides the following list of factors that ISS may consider when evaluating the metrics of an incentive program:

• Whether the program emphasizes objective metrics that are linked to quantifiable goals, as opposed to highly subjective or discretionary metrics
• The rationale for selecting metrics, including the linkage to company strategy and shareholder value
• The rationale for atypical metrics or significant metric changes from the prior year
• The clarity of disclosure around adjustments for non-GAAP metrics, including the impact on payouts

Changes to In-Progress Incentive Programs

Mid-cycle changes (such as to metrics, performance targets and/or measurement periods) to in-progress incentive programs are generally viewed negatively by ISS. Updated FAQ 42 notes that, as with other kinds of unusual pay program interventions, companies should disclose clear and compelling rationale for such actions and explain how they do not circumvent pay-for performance outcomes.

What’s Next

Companies should assess how the changes to ISS’s proxy voting policies may impact shareholder voting on any proposals to be included on their agenda or the election of their directors for their 2025 annual meetings.

If a company identifies issues that it believes could result in a negative recommendation from ISS, it should engage with its key shareholders on these issues prior to the proxy season.

Companies should also review their description of nature-related policies, metrics, risk assessment report(s), and risk management procedures with broadly accepted reporting frameworks, like the TNFD, to determine whether they are aligned.

Companies should also review Glass Lewis’ updated benchmark policy guidelines.

Companies are also urged to review ISS’ updated FAQ on executive compensation with their counsel to determine if and how these updates may impact the company—and what changes to compensation practices and/or disclosures may be advisable.