News

EXECUTIVE SUMMARY

On November 25th, 2025, ISS published its long-awaited Benchmark Policy Updates document for corporate issuers filing on or after February 1st, 2026. There were 19 global policy changes, with 8 of them focused on US-based tickers.

Three of these policy changes impact three of the most important elements of ISS’s determination of a company’s compensation practices. ISS will be providing for greater allowances when time-based equity awards outweigh performance-based awards. ISS will also be increasing its lookback period for the quantitative screening of the CEO’s compensation as part of its Pay for Performance screening, likely focused on the Relative Degree of Alignment test. Finally, ISS has indicated two new factors will be added to the Plan Features pillar of the Equity Plan Score Card, which will lead to a reweighting of existing factors, and an increased focus on meeting an as-of-yet-undisclosed threshold of minimum points in the Plan Features pillar.

The other changes indicate ISS’s continued proactive governance and compensation assessment practices. ISS is pulling back on stated guidelines for how it will issue recommendations for Environmental and Social shareholder proposals, but will place greater scrutiny on director pay. ISS has also allowed for a greater berth for company disclosures in the context of Section 13G vs. 13D, and finally, clarified certain policies.

How ISS Considers Changes to Its Policy
Before we dive into the upcoming changes to the ISS policies for 2026, it’s important to understand how ISS arrived at its conclusions- especially in light of the government’s current scrutiny of proxy advisory firms like ISS and Glass-Lewis.

ISS’s policy update process is outlined in detail in the Updates document, but the important events can be summarized as such:

● Step 1: ISS assesses and evaluates market changes, governance trends, and regulatory changes. That is, they take a look around and see which way the winds are blowing.

● Step 2: ISS opens its Global Benchmark Policy Survey. This is a prime opportunity for corporate issuers and institutional investors to directly voice their questions, concerns, and views to ISS directly. As an advisor, I strongly recommended my clients to participate in the survey.

● Step 3: ISS launches the Open Comment Period. The feedback they receive during the Open Comment Period influences how ISS implements their changes, in terms of detail, reach, comprehensiveness, and allowed exceptions.

● Step 4: ISS publishes the aforementioned Benchmark Policy Updates document (November 25, 2025), followed by the publication of all 2026 updated policies (early December 2025), and then finally the policy changes are implemented for annual general meetings occurring on or after February 2, 2026.

ISS does conduct in-person discussions during its policy formulation period, and also takes into account feedback received year-round for its policy updates.

Given all of what ISS has learned this year, their conclusions have led to a number of relatively involved and impactful policy changes.

The Three Biggest Changes to ISS’s Benchmark Policy

These three changes have been noted as the most impactful based on my perspective and experience as an advisor with ISS-Corporate. I would expect these three changes to raise the most questions from affected companies, and create the biggest changes in the advice and recommendations I would have provided to my clients. That said, the other changes discussed below are not necessarily less important at all, but I anticipate they will not be as difficult or complicated to adapt to.

Per ISS:

Long-Term Alignment in Pay-for-Performance Evaluation

Updates U.S. pay-for-performance quantitative screens to assess pay for performance alignment over a longer-term time horizon, considering a five-year period, above the current three years, while also maintaining an assessment of pay quantum over the short term.

Assessment:

The ISS Pay for Performance (PFP) quantitative screening is an assessment of the company’s CEO pay compared to the target company’s performance and the CEO pays of peer companies. There are three initial screenings (and a modifier that’s implemented in some cases) that each result in a LOW, MEDIUM, or HIGH level of concern, which then inform the overall level of quantitative concern.

Based on what’s been provided by ISS, my understanding is that the RDA screening will be increased to a 5-year lookback. This screening compares the CEO’s pay and the target company’s TSR performance to the peer group’s CEO pays and TSR performances. The screening intends to capture if certain factors affected the target company and its peers, which could lead to a general downturn in TSR or a peer-wide increase in CEO pay.

It seems ISS intends to capture a more holistic sense of the company’s pay practices, and if their current alignment with peer performance is indeed a reflection of how the company’s compensation programs have been doing.

As a result, I expect issuers will have to beef up their Compensation Discussion and Analysis sections if an action from four or five fiscal years ago elevates the quantitative screenings.

Per ISS:

Time-Based Equity Awards with Long-Term Time Horizon

This policy update reflects the importance of longer-term time horizons for time-based equity awards and provides for a more flexible approach in evaluating the equity pay mix in pay-for-performance qualitative reviews.

Assessment:

This policy change, in this form, is exceedingly vague, and I expect has raised eyebrows, hopes, and concerns. Based on Appendix B of the Update document, the overall sentiment from stakeholders was positive, citing the allowance of increased flexibility. The naysayers remained beholden to performance-based awards.

This change is an indication that ISS has taken into account the general trend of companies that included a greater portion of time-based vesting conditions for their equity awards compared to performance-based vesting conditions. While the arguments for performance-based awards are strong, there is still value to awards that vest based on time spent with the company.

I expect greater rationale and narratives from companies who have 50% or more of their CEO equity awards subject to time-based vesting.

Per ISS:

Enhancements to Equity Plan Scorecard

Adds a new scoring factor under the Plan Features pillar to assess whether plans that include non-employee directors disclose cash-denominated award limits, and introduces a new negative overriding factor for equity plans found to be lacking sufficient positive features under the Plan Features pillar despite an overall passing score.

Assessment

The first part of these proposed changes indicates that a new factor will be added to the ISS Equity Plan Score Card (EPSC), which is the assessment that determines if ISS will support or oppose new or amended equity plans- which almost always are on the ballot because the target company needs shareholder authorization to increase their share reserve.

The EPSC is (usually) scored out of 100 points, organized into three pillars, with a passing threshold based on the company’s index (S&P 500, R3K, etc). The inclusion of a new factor will lead to a re-weighting of the other factors, and, potentially, the three pillars.

The three ‘pillars’ are essentially three overarching categories that the scored factors are grouped into: Plan Cost, Plan Features, and Grant Practices. The Plan Features pillar takes into account almost all of the policies that ISS assesses on a qualitative level, and is the prime category for this new assessment of nonemployee directors' cash-denominated award limits.

I expect that most companies will not receive credit for this factor for one of two reasons: either they do not have or do not disclose the limit for nonemployee directors’ cash awards, or the existing disclosure is not comprehensive or robust enough. It’s likely that over time, more and more companies will adopt the acceptable policy language as it becomes clear what is considered ‘robust’ (and if the company determines if such a policy is indeed what the shareholders would prefer to have in the equity plan).

The second half of this policy change indicates that a new ‘dealbreaker’ provision will also be included in the Plan Features pillar. The term dealbreaker indicates that ISS will automatically fail the company’s equity plan if not enough points are earned in the Plan Features pillar, regardless of points achieved. I expect the updated ISS Equity Compensation Plans FAQ will outline how many points a company needs to score in the Plan Features pillar to not trigger this dealbreaker.

ISS noted in Appendix B of the Update document that stakeholders indicated that this dealbreaker may unfairly bias towards the Plan Features pillar and undermine the other pillars, which take into account the company’s overhang and burn rate.

In my experience, very few companies scored single digit points in the Plan Features pillar, and if they did, their equity plans also included other antiquated policies, such as an evergreen provision (an existing dealbreaker factor in the EPSC), or if the plan permits repricing of options/SARs without shareholder approval (another existing dealbreaker).

I predict only a handful of companies will be directly affected by this policy change, and even fewer will receive an adverse ISS recommendation on their equity plan as long as they make the effort to achieve the threshold score for this dealbreaker provision.

The Other Five ISS Policy Changes for US Companies

Per ISS:

Problematic Capital Structure - Unequal Voting Rights

Eliminates 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.”

Assessment:

There were a handful of companies with dual-class share structures that were skating by due to language loopholes. This policy change should capture all companies with multiple classes of shares (ala META or GOOG). ISS considers a dual-class structure a Problematic Governance Practice, and often leads to ISS recommending against the company when it comes to governance shareholder or management proposals.

Per ISS:

Compensation Committee Responsiveness

Streamlines policy language by removing duplicated factors for evaluating responsiveness to shareholder input on executive pay. The section now cross-references the factors listed under the Board of Directors policy.

Assessment:

In line with the above policy change, ISS is buttoning up their language based on whatever feedback or internal assessment that determined that their existing policies could use clarification. In this case, I expect language changes to page 50 of the ISS Proxy Voting Guidelines document, but no impactful policy changes.

Per ISS:

Company Responsiveness

Expands flexibility for companies to demonstrate responsiveness to low say-on-pay support, in light of recent SEC guidance on 13G vs. 13D filing status that may limit shareholder engagement.

Assessment:

13G filers, or shareholders who own 5% or more of a firm’s outstanding securities, would likely be less proactive in responding to an issuer’s shareholder engagement efforts. By definition, 13G filers are less involved and engaged, and would negatively impact shareholder outreach. When it comes to say-on-pay, ISS expressly looks to see a CD&A report on what feedback was received by a company during their engagement efforts. This policy change indicates that ISS is aware of the SEC guidance and is willing to adapt to the reporting changes in company’s say-on-pay disclosures.

Per ISS:

High Non-Employee Director Pay

Expands existing policy that addresses high NED pay practices, allowing for adverse recommendations in the first year of occurrence if considered highly problematic, or when a pattern emerges across non-consecutive years.

Assessment:

Director pay has an impact on ISS’s recommendations on say-on-pay and equity plans, but only if the director pay is determined to be high compared to peers in consecutive years. Based on this update, I expect ISS will introduce or indicate mechanics or measures to determine if a director’s compensation reaches a ‘highly problematic’ threshold in a single year. Furthermore, I expect a very involved computation or a very generalized qualitative review to determine if compensation in non-consecutive years was high.

It seems ISS intends to highlight companies who routinely are flagged for high director compensation.

For more information on how ISS assesses director compensation, you may refer to FAQ 84 of ISS’s Procedures and Policies FAQ document.

Per ISS:

E&S-related shareholder proposals*

Adopts a fully case-by-case approach for proposals on diversity, political contributions, human rights, and climate change, reflecting varied proposal scope, shifting investor sentiment, regulatory changes, and evolving company practices.

Assessment:

If we take Human Rights proposals as an example, as per page 76 of the ISS Proxy Voting Guidelines FAQ, ISS generally votes FOR proposals requesting a report on company or company supplier labor and/or human rights standards and policies unless such information is already publicly disclosed. An adverse recommendation is based on a slew of factors, as listed.

In practice, that means that if a company is already in lockstep with its peers, the market, and is making measurable efforts towards disclosing human rights standards, then ISS will not support the shareholder proposal. If the company lags its peers, or its current disclosures and efforts are not determined to be adequate, then ISS would support the activist proposal.

Per this policy change, it seems ISS is doing away with its provided, stated guidelines, and falling back behind a veil of vagueness when issuing recommendations pertaining to the listed proposal types.

Given the current political climate, I believe most advisors would agree that this is actually a boon to corporate issuers who face activist proposals that make it to the ballot. ISS is, evidently, stepping aside and removing complications in an already complicated field. On the flipside, it is also entirely possible that ISS may penalize companies for unforeseen governance missteps and issue recommendations that oppose the company and benefit the proposal’s proponent.

I expect further clarity when the 2026 Proxy Voting Guideline FAQ is released.

Conclusion

ISS has introduced a number of transformative and impactful policy changes for 2026, ranging from its Equity Plan Score Card, to its qualitative and quantitative say on pay reviews, to even their director compensation assessments.

Adapting to all of these policy changes will require corporate issuers to understand the updated policies, their thresholds and scope, and implement the necessary changes to their corporate governance policies and disclosures.

At Lioness Consulting, we can help you navigate the world of corporate governance and executive compensation disclosures and policies, along with shareholder outreach, proxy voting practicalities, and proxy solicitations for both public and private corporations.