ISS Releases 2025 Benchmark Policy Updates and Updated FAQs on Executive Compensation Policies

Proxy advisory firm ISS Governance has released its 2025 U.S. Benchmark Policy Guidelines, which are effective for shareholder meetings held on or after February 1, 2025. See also the related 2025 Benchmark Policy Updates Executive Summary and 2025 U.S.-Specific Benchmark Policy Changes. The notable policy updates for U.S. public companies in 2025 are modest, addressing short-term poison pills and SPAC extension requests. In addition, although not a policy change at this time, ISS is introducing for the 2025 proxy season modifications to its evaluation of performance equity programs, and has published several new or materially updated questions and responses as part of its U.S. Executive Compensation Policies Frequently Asked Questions. The 2025 updates are summarized below.

Short-Term Poison Pills

ISS has clarified the factors that will be considered in its case-by-case evaluation of whether the board’s actions in adopting a short-term poison pill (with a term of one year of less) without shareholder approval were reasonable, or whether the adoption of the pill should be deemed a governance failure warranting a recommendation to vote against directors. Among the additional factors for consideration explicitly noted are the trigger threshold and other terms of the pill; the context in which the pill was adopted; and the company’s overall track record on corporate governance and responsiveness to shareholders. There is no change at this time to the policy applied when a board adopts a long-term pill without a shareholder vote, or when a pill is submitted to shareholders for approval or ratification.

SPAC Proposals for Extensions

ISS has codified its current approach to recommend support for SPAC extension requests of up to one year from the original termination date. Multiple extension requests may be looked at favorably so long as they do not collectively exceed one year in total. The “original termination date” start point is inclusive of any built-in extension options that were included in the original governing documents.

Compensation-Related Updates

• Modifications to Evaluation of Performance-Based Incentives (FAQ 34). Beginning with the 2025 proxy season, ISS will place a greater focus on performance-vesting equity disclosure and design aspects, particularly for companies that exhibit a quantitative pay-for-performance misalignment. While ISS has historically analyzed the disclosure and design of incentive programs as part of the qualitative review, investors have increasingly expressed concerns with the potential pitfalls surrounding performance equity programs. As such, existing qualitative considerations around performance equity programs going forward will be subject to greater scrutiny in the context of a quantitative pay-for-performance misalignment. Typical considerations that would trigger a higher level of scrutiny include the following non-exhaustive list:
  • 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; and/or
  • Overly complex performance equity structures.

Multiple concerns identified with respect to performance equity programs will be more likely to result in an adverse say-on-pay recommendation in the context of a quantitative pay-for-performance misalignment.

ISS notes that some investors have advocated for companies replacing performance-conditioned equity awards with time-based equity awards that have extended vesting periods. A potential ISS benchmark policy update remains under consideration for 2026 (or later) regarding the evaluation of the equity pay mix for regular-cycle equity awards whereby a preponderance of time-vesting equity awards generally would not in itself raise significant concerns in the qualitative review of pay programs. ISS will continue to welcome additional feedback on this topic through 2025.

• “Robust” Clawback Policies (FAQ 46). In order to receive credit for a “robust” clawback policy in the “Executive Compensation Analysis” section of the ISS research report for purposes of say-on-pay vote evaluations, a company’s clawback policy must extend beyond minimum Dodd-Frank requirements and explicitly cover all time-vesting equity awards. A clawback policy that adheres only to minimum Dodd-Frank requirements will not be considered robust, because those requirements generally do not cover all time-vesting equity awards. This update (which was previously included as part of an October 2024 off-cycle update) is generally consistent with ISS’ existing position under its Equity Plan Scorecard (EPSC) used to evaluate equity incentive plan proposals, which provides that a clawback policy that adheres only to minimum Dodd-Frank requirements will not receive EPSC points because it does not cover time-vesting equity awards (see FAQ 44 in U.S. Equity Compensation Plans Frequently Asked Questions).

In a recently published report, SEC Clawback Rules: Initial Impacts in the 2024 Proxy Season, ISS analyzed the number of companies that implemented changes in their clawback policies in 2024 compared to what they had in place in 2023. The report found that nearly 80% of the companies analyzed did not implement any changes in their clawback policies, while only 14% upgraded to a “robust” policy (also covering time-based awards). ISS notes that the 14% were most commonly S&P 600 companies, followed by S&P 400 companies, and largely in the healthcare and biotech sectors.

• Realizable Pay (FAQ 24). Consistent with an off-cycle update from October 2024, ISS will not display a realizable pay chart for companies that have experienced two or more CEO changes within the three-year measurement period. Otherwise, realizable pay will be displayed as before.
• Evaluation of Incentive Program Metrics (FAQ 39). When evaluating the metrics of an incentive program, ISS may consider several factors, such as 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; and/or the clarity of disclosure around adjustments for non-GAAP metrics (including the impact on payouts).
• Changes to In-Progress Incentive Programs (FAQ 42). Mid-cycle changes (such as to metrics, performance targets and/or measurement periods) for in-progress incentive programs are generally viewed negatively. As with other kinds of unusual pay program interventions, companies should disclose a clear and compelling rationale for such actions and explain how they do not circumvent pay-for-performance outcomes.