Why this Say-on-Pay proxy season resets the rules
For compensation committees, this Say-on-Pay 2026 proxy season is not business as usual. The shift by ISS and Glass Lewis to five year pay performance assessments means every proxy statement now replays a full strategic cycle, and boards can no longer hide a single bad grant behind short term market noise. If your company treated executive compensation as an annual negotiation rather than a multi year design, this proxy season will expose that pattern.
Both proxy advisors have raised the bar on governance expectations, so companies that relied on boilerplate disclosure will feel the pressure first. Glass Lewis, in its 2025 U.S. Benchmark Policy Guidelines (see Pay-for-Performance and Compensation sections), replaced its old letter grades with a 0 to 100 pay-for-performance scorecard across six weighted tests, and that score now shapes how institutional investors interpret every shareholder proposal on pay. ISS, in its 2025 Americas policy update and related U.S. Benchmark Proxy Voting Guidelines, still runs its quantitative screens but now stretches the primary pay performance window to five years, which punishes companies that leaned on one off retention awards or outsized sign on equity.
The practical implication is simple yet uncomfortable. Your board oversight narrative on compensation must connect five years of proxy statements into a coherent story, and that story must align with realized pay and total shareholder return. If the company specific facts show rising executive pay while investors experienced flat returns, no amount of elegant language in the proxy will rescue the Say-on-Pay vote.
The three grant design red flags under the new scorecards
Under the refreshed methodologies, three grant design choices now trigger immediate risk for any company entering this Say-on-Pay 2026 proxy season:
- Short cycle performance RSUs – Heavy use of performance RSUs with two or three year performance periods looks misaligned when proxy advisors are judging pay performance over five years, because the awards reset faster than the business strategy and can over reward early outperformance.
- Large one time “make whole” or retention grants – Sizeable discretionary awards that lack clear performance conditions are treated harshly in both ISS and Glass Lewis models, especially when prior Say-on-Pay voting support already dipped below seventy percent or when total shareholder return trails peers.
- Persistent reliance on short vesting time based equity – Time based equity with front loaded vesting schedules under three years drags down qualitative assessments, even though time based equity with five year or longer vesting is now a positive factor and can offset concerns about headline pay levels.
Glass Lewis explicitly rewards longer vesting as evidence of better governance and stronger alignment with shareholder interests, while ISS treats extended vesting as a mitigating element when evaluating executive compensation outliers. In ISS’s 2024 and 2025 policy application examples, for instance, companies with CEO equity vesting beyond four years were less likely to receive an “elevated concern” pay-for-performance rating even when grant values were above peers. Companies that still grant annual time based RSUs with three year ratable vesting to the CEO should expect tougher questions from institutional investors and more skeptical commentary from every major proxy advisor.
Boards should map their last five years of equity awards against these three red flags. A simple internal table that lines up each year’s CEO grant mix, vesting horizon, Say-on-Pay outcome, and relative TSR can quickly reveal patterns. For example, one internal review might show that in years one and two, CEO pay opportunity rose by twenty percent while five year TSR lagged the peer median by ten percentage points, coinciding with heavy use of short cycle performance RSUs and a one time retention grant. If your proxy statements show repeated use of short cycle performance RSUs, large discretionary retention awards, and quick vesting time based equity, then this proxy season will be unforgiving. The board must be ready to explain why those designs supported strategy rather than simply inflating executive pay.
Short cycle performance RSUs, engagement narratives and CEO pay ratio
Short cycle performance RSUs became popular because they felt easier to calibrate, yet under the Say-on-Pay 2026 proxy season lens they now look like a mismatch with five year pay performance tests. When performance RSUs vest on a three year schedule while ISS and Glass Lewis evaluate outcomes over five years, proxy advisors see a structural gap between incentive horizons and shareholder experience. That gap becomes especially visible when a company delivers strong results early, pays out maximum awards, and then underperforms in the later years of the same proxy season window.
To manage this tension, boards should consider layering longer performance periods or adding post vesting holding requirements, which both ISS and Glass Lewis treat as positive governance signals. ISS has also introduced more flexibility when prior Say-on-Pay support fell below seventy percent, but only if the proxy statement shows specific engagement steps, investor feedback themes, and concrete action requests that the board translated into design changes. Vague references to “robust shareholder engagement” without naming the number of meetings, the mix of institutional investors, or the resulting compensation proposals now read as pure boilerplate.
The CEO pay ratio narrative is another stress point this proxy season. Investors do not expect an apology for a high ratio in a capital intensive company, yet they do expect a clear explanation of workforce pay structure, median employee roles, and how the board oversight framework links executive pay to broader human capital outcomes. A crisp, company specific narrative in the proxy can turn a potentially inflammatory number into a thoughtful discussion of pay equity, internal progression, and long term value creation. For instance, a company could include a compact table showing five year median employee pay progression alongside five year CEO realized pay and TSR, then explain how CEO incentives are tied to safety, retention, and productivity metrics that support sustainable performance.
Timing the next grant cycle and aligning with proxy advisors
Most compensation committees wait too long to rethink grant design, and this Say-on-Pay 2026 proxy season punishes that habit. If you start the conversation about the next equity cycle in December, you will be locked into legacy structures just as ISS and Glass Lewis publish fresh guidance and as institutional investors refine their own proxy voting policies. The smarter move is to begin the 2027 grant design debate immediately after this proxy season closes, while feedback from investors and proxy advisors is still specific and actionable.
That early start allows the board to test alternative equity mixes, such as combining longer vesting time based equity with five year performance RSUs, and to model how those choices will appear in future pay performance screens. It also creates space to coordinate with the finance team on ASC 718 expense impacts, with the legal function on item regulation requirements, and with the HR organization on talent market competitiveness, rather than rushing a decision in the final compensation committee meeting of the year. When boards treat grant design as a rolling, multi season proxy conversation instead of a one off event, they reduce the risk of surprise negative recommendations from ISS or Glass Lewis.
Finally, remember that ISS will now look more favorably on companies that respond to weak Say-on-Pay outcomes with documented engagement and tangible design shifts. That means your proxy statement next year should show a clear line from shareholder proposals and investor feedback to specific changes in metrics, vesting, or caps on executive pay. A straightforward before-and-after summary of the program, even in narrative form, can make those shifts unmistakable. The real retention lever is not another complex performance grid, but a pay program that investors trust enough to support through multiple cycles.
Frequently asked questions about Say-on-Pay and the new proxy season tests
How does the longer five year pay performance window change our priorities ?
The extended five year window means that compensation committees must think beyond single year outcomes and design executive compensation that aligns with a full strategic cycle. Short term fixes, such as one time retention grants or outsized sign on awards, will now remain visible in proxy advisor models for much longer. As a result, boards should prioritize consistent grant sizing, longer vesting, and metrics that track durable value creation rather than temporary spikes.
What kind of engagement detail do investors expect in the proxy statement ?
Investors now expect concrete engagement disclosure that goes beyond generic statements about outreach. Effective proxy statements specify how many investors the company met, what percentage of shares those investors represent, and which themes emerged from the conversations. The best examples also link each major concern, such as pay performance alignment or severance terms, to a specific board action or design change.
Are time based equity awards still acceptable under the new methodologies ?
Time based equity awards remain acceptable, but their structure matters more in this proxy season. Awards with vesting periods of five years or longer are viewed as supportive of long term alignment, while short vesting schedules under three years can raise governance concerns. Companies should consider extending vesting or adding post vesting holding requirements, especially for the CEO and other named executive officers.
When should we start planning changes for the next grant cycle ?
Planning for the next grant cycle should begin immediately after the current Say-on-Pay vote and proxy season conclude. Early planning allows the board to incorporate fresh investor feedback, updated ISS and Glass Lewis policies, and any new regulatory guidance into the design. Waiting until late in the year compresses the timeline and increases the risk of misalignment with both market practice and proxy advisor expectations.
How should we address a prior Say-on-Pay vote below seventy percent support ?
A Say-on-Pay result below seventy percent is now a clear signal that demands a structured response. Boards should conduct targeted outreach to major shareholders, document the specific concerns raised, and then adjust elements of executive compensation that drove the opposition. The following proxy statement must then present this journey transparently, showing how engagement shaped concrete changes rather than cosmetic tweaks.
What immediate steps should the compensation committee take for Say-on-Pay 2026 ?
Compensation committees can use a concise checklist: review five year CEO pay versus TSR, flag any short cycle performance RSUs, identify large one time retention or make whole grants, assess vesting length on time based equity, summarize shareholder engagement since the last vote, and confirm that the proxy clearly explains how design changes respond to ISS 2025 and Glass Lewis pay-for-performance expectations.
