Executive Summary
- What’s new: ISS announced updates to its 2026 benchmark proxy voting policies, including changes in the assessment of unequal voting rights, pay for performance, time-based equity awards, board responsiveness to low say-on-pay support, excessive nonemployee director compensation and certain shareholder proposals, as well as enhancements to the advisory firm’s equity plan scorecard (EPSC).
- Why it matters: These developments, which are relevant to the 2026 proxy season, reflect evolving investor views, regulatory changes and ongoing legal and political pressures facing proxy advisory firms.
- What to do next: Companies should monitor these developments, review their compensation and governance practices and any new equity plans for which they are seeking shareholder approval in the upcoming proxy season, and consider enhanced disclosure and engagement efforts in anticipation of the updated ISS policies.
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On November 25, 2025, Institutional Shareholder Services (ISS) announced updates to its 2026 benchmark proxy voting policies, which will be applied for shareholder meetings taking place on or after February 1, 2026. We summarize the notable U.S. policy updates below:
- Problematic capital structure — unequal voting rights. ISS is eliminating inconsistencies in the treatment of capital structures with unequal voting rights by considering them problematic regardless of whether superior voting shares are classified as “common” or “preferred.”
- Long-term alignment in pay-for-performance evaluation. ISS is extending the time frame of the three relative measures used in its quantitative pay-for-performance screen, shifting the assessment period for the relative degree of alignment (RDA) and financial performance assessment (FPA) measures from three years to five years, while also retaining an assessment of relative pay over the shorter term, with the multiple of median (MOM) measure now tested over both one-year and three-year periods instead of only the most recent fiscal year. These changes are intended to better align the quantitative pay-for-performance screen with how investors assess relative long-term performance when evaluating compensation while emphasizing sustained value creation and reducing the impact of short-term and mid-term fluctuations and unusual or external events.
- Time-based equity awards with long-term horizons. ISS is adding flexibility to its qualitative pay-for-performance review regarding the assessment of equity pay mix, whereby time-based equity awards with extended vesting and/or retention requirements will be viewed positively. This change reflects evolving investor views about the effectiveness of the design and disclosure of performance-based equity awards and the appropriate balance between time-based and performance-based equity awards. However, ISS will also continue to view well-designed and clearly disclosed performance-based equity awards positively, and will continue to evaluate the overall mix of equity awards qualitatively on a case-by-case basis, taking into account company-specific facts and circumstances.
- Board responsiveness to low say-on-pay support. ISS is adding flexibility for instances were boards seeking to demonstrate responsiveness to low support for a say-on-pay proposal (i.e., less than 70% of votes cast) disclose meaningful efforts to engage with shareholders and were unable to obtain specific feedback for whatever reason, including as a result of recent SEC guidance regarding passive (13-G) versus active (13-D) filing status for institutional shareholders that may reduce active investor engagement in shareholder outreach campaigns. Under the update, ISS will not view the absence of specific shareholder feedback negatively if the company discloses meaningful engagement efforts and, notwithstanding the lack of specific feedback, describes meaningful company actions taken in response to the low say-on-pay support, including the rationale for such actions and their benefits to shareholders.
- Excessive nonemployee director compensation. ISS is expanding its policy on excessive nonemployee director (NED) compensation to allow for adverse recommendations against committee members responsible for approving/setting NED compensation in the first year of occurrence for director pay issues that ISS considers “egregious” (which ISS explains may include performance-based awards, retirement benefits or problematic perquisites), or where a pattern of excessive or problematic pay appears across two or more consecutive or even nonconsecutive years (i.e., in year 1 and year 3, but not in year 2). Under its previous policy, ISS required a pattern of awarding excessive NED compensation across two or more consecutive years before triggering adverse vote recommendations, effectively allowing a “single bite at the apple” approach to unusual or outsized NED payments or awards, or even multiple “bites” as long they occurred in nonconsecutive years. Examples of concerning or problematic pay practices for NEDs given by ISS include unusually high pay levels relative to industry peer medians, NED pay exceeding executive officer pay, performance-based awards, retirement benefits, excessive perquisites and generally inadequate disclosure of, or the lack of a clear rationale for, unusual NED payments. However, slightly elevated pay without additional concerning factors or a multiyear pattern will continue to result in warnings without adverse vote recommendations.
- Enhancements to the ISS Equity Plan Scorecard. ISS is introducing new elements to its Equity Plan Scorecard used to evaluate shareholder proposals to approve new or amended equity-based compensation plans, including (i) a new scored factor in the “Plan Features” pillar of the EPSC for plans that include a cash-denominated award limit for NEDs (for 2026, this factor will only apply to the S&P 500 and Russell 3000 EPSC models), and (ii) a new overriding negative factor under which a plan will receive an “Against” recommendation if the plan lacks sufficient positive features under the “Plan Features” pillar of the EPSC, despite an overall passing score (for 2026, this factor will only apply to the S&P 500, Russell 3000 and non-Russell 3000 EPSC models).
- E&S-related shareholder proposals. ISS is adopting a fully case-by-case approach for shareholder proposals on diversity, political contributions, human rights and climate change, reflecting varied proposal scope, shifting investor sentiment, regulatory changes and evolving company practices. ISS notes that this update is a result of feedback received during its client engagement process.
Continued Pressure on Proxy Advisors and Ongoing Litigation
Recent state-level initiatives and other political pressures have continued to put ISS and Glass Lewis under a microscope. Most recently, on November 20, 2025, the Florida attorney general announced an enforcement action against ISS and Glass Lewis alleging violations of state consumer protection and antitrust laws, including for jointly maintaining an agenda that favors environmental, social and governance (ESG) demands and other directives that expose businesses to legal and financial risk. This litigation adds to the lawsuits ISS and Glass Lewis have filed against the Texas attorney general and other state officials following Texas’ enactment of SB 2337, which would require proxy advisors such as ISS and Glass Lewis to disclose when recommendations rely on “nonfinancial” factors such as ESG or diversity, equity and inclusion considerations. In August 2025, a federal judge issued preliminary injunctions blocking enforcement of SB 2337, with trial set for February 2026.
In addition, media reports state that, following news that the Trump administration is considering at least one executive order to reduce the two advisory firms’ influence on shareholder voting, the Federal Trade Commission launched an investigation into whether ISS and Glass Lewis violated antitrust laws.
Companies should monitor these developments, as the outcome of these litigations and any federal actions could materially alter the obligations and content of proxy advisory recommendations for future shareholder meetings.
This memorandum is provided by Skadden, Arps, Slate, Meagher & Flom LLP and its affiliates for educational and informational purposes only and is not intended and should not be construed as legal advice. This memorandum is considered advertising under applicable state laws.