Glass Lewis Releases 2025 Benchmark Policy Updates

Proxy advisory firm Glass Lewis (GL) has released its 2025 U.S. Benchmark Policy Guidelines and related 2025 Benchmark Policy Guidelines for Shareholder Proposals & ESG-Related Issues, in each case effective for shareholder meetings held on or after January 1, 2025. The key policy updates and clarifications for U.S. public companies in 2025 are less numerous than in recent years and focus on board oversight of artificial intelligence (AI); change-in-control provisions for executive compensation; board responsiveness to shareholder proposals; holistic analysis of executive compensation programs; reincorporation proposals; and evaluation of shareholder proposals pertaining to companies’ use of AI technologies. The 2025 updates are summarized below.

Key Changes

• Board Oversight of Artificial Intelligence. GL has added a new discussion outlining its approach to AI-related board risk oversight. GL believes that all companies that develop or employ the use of AI in their operations should provide clear disclosure concerning the role of the board in overseeing issues related to AI, including how companies are ensuring directors are fully versed on this rapidly evolving and dynamic issue. While GL believes that it is important that these issues are overseen at the board level and that shareholders are afforded meaningful disclosure of these oversight responsibilities, it believes that companies should determine the best structure for this oversight. In GL’s view, this oversight can be effectively conducted by specific directors, the entire board, a separate committee, or combined with the responsibilities of a key committee.

In the absence of material incidents related to a company’s use or management of AI-related issues, GL will generally not make voting recommendations on the basis of a company’s oversight of, or disclosure concerning, AI-related issues. However, in instances where there is evidence that insufficient oversight and/or management of AI technologies has resulted in material harm to shareholders, GL will review a company’s overall governance practices and identify which directors or board-level committees have been charged with oversight of AI-related risks. GL will also closely evaluate the board’s response to, and management of, this issue as well as any associated disclosures and may recommend against appropriate directors should GL find the board’s oversight, response or disclosure concerning AI-related issues to be insufficient.

• Executive Compensation Change-in-Control Provisions. GL has updated its discussion of change-in-control provisions to address companies that allow for committee discretion over the treatment of unvested awards. Companies that allow such discretion should commit to providing a clear rationale for the committee’s ultimate decision as to how such awards should be treated in the event a change in control occurs.

Key Clarifications

• Board Responsiveness to Significantly Supported Shareholder Proposals. GL has modified its discussion of board responsiveness to shareholder proposals to reflect that when shareholder proposals receive significant shareholder support (generally more than 30% but less than a majority of votes cast), GL believes an initial level of board responsiveness is warranted. In such instances, GL believes boards should engage with shareholders on the issue and provide disclosure addressing shareholder concerns and outreach initiatives.

GL continues to expect clear action from the board when shareholder proposals receive majority support including, for example, by fully implementing the request and/or engaging with shareholders on the issue and providing sufficient disclosures to address shareholder concerns.

• Executive Compensation Programs. GL has added several clarifying statements to the discussion of say-on-pay voting recommendations to emphasize its holistic approach to analyzing executive compensation programs. GL analyzes executive pay programs on a case-by-case basis and reviews all factors related to named executive officer compensation, including quantitative analyses, structural features, the presence of effective best practice policies, disclosure quality and trajectory-related factors. Except for particularly egregious pay decisions and practices, no one factor would ordinarily lead to an unfavorable recommendation without a review of the company’s rationale and/or the influence of such decisions or practices on other aspects of the pay program, most notably the company’s ability to align executive pay with performance and the shareholder experience.

The revised guidelines also state that while GL understands that regulatory disclosure rules such as smaller reporting company disclosure standards may condone the omission of key executive compensation information, GL believes that companies should provide sufficient information in the proxy statement to enable shareholders to vote in an informed manner.

• Management Reincorporation Proposals. GL has revised its discussion on reincorporations to reflect that it reviews all management proposals to reincorporate to a different state or country on a case-by-case basis. Its review includes the changes in corporate governance provisions, especially those relating to shareholder rights, material differences in corporate statutes and legal precedents, and relevant financial benefits, among other factors, resulting from the change in domicile. In cases where a controlled company is seeking to change its domicile, GL will closely evaluate how the independent members of the board came to its recommendation, if the controlling shareholder had any ability to influence the board, and if the proposal is also put to a vote of disinterested shareholders.

GL continues to view shareholder-initiated reincorporations with skepticism and will only support shareholder-initiated reincorporation proposals in exceptional circumstances.

Other Notable Updates

• Company Responsiveness to Say-on-Pay Proposals. GL has amended its guidelines to indicate that the compensation committee’s response to a significant level of shareholder opposition to a say-on-pay proposal (i.e., more than 20% of votes cast as against and/or abstain) should be discussed in the company’s proxy statement, rather than provided in another filing or communication.
• Pay for Performance. GL has modified its guidelines regarding the peer groups used in its proprietary pay-for-performance model to include the peers of a company’s self-disclosed peers.
• Long-Term Incentives. GL has clarified that in cases where performance-based awards are significantly rolled back or eliminated from a company’s long-term incentive plan, GL will assess the revision’s impact on the pay program’s ability to align executive pay with performance and shareholder experience, and the program may receive an unfavorable recommendation if it fails GL’s assessment or if the change is not offset by meaningful revisions such as to pay quantum and vesting periods, particularly in the absence of a cogent rationale.
• CEO Pay Ratio. Although a company’s CEO pay ratio will continue to not be a determinative factor in GL’s voting recommendations, GL has added a statement that it believes the underlying data may help shareholders evaluate the rationale for certain executive pay decisions such as increases in fixed pay levels.

AI-Related Shareholder Proposals

GL has added a new discussion outlining its approach to AI-related shareholder proposals. GL generally encourages companies to provide sufficient disclosure to allow shareholders to broadly understand how they are using AI in their operations and whether there have been any ethical considerations incorporated in their use of this technology.

GL will carefully evaluate all shareholder proposals dealing with companies’ use of AI technologies and will make recommendations on these proposals on a case-by-case basis. When evaluating these proposals, GL will closely review the request of the proposal, and the disclosure provided by the company and its peers concerning their use of AI and the oversight afforded to AI-related issues. GL will also evaluate any lawsuits, fines or high-profile controversies concerning the company’s use of AI as well as any other indication that the company’s management of this issue presents a clear risk to shareholder value.