2026 Proxy Season Review, Part 2 (Compensation Related Matters)

September 29, 2026

A comprehensive review of the 2026 proxy season reveals a robust shareholder sentiment towards executive compensation, characterized by consistently strong "Say on Pay" results, evolving proxy advisor methodologies, and proposed shifts in regulatory disclosure requirements. While overall shareholder support for executive compensation plans remained high, the nuances of pay-for-performance alignment and the influence of proxy advisory firms like Institutional Shareholder Services (ISS) continue to shape corporate governance discussions. This second part of the review delves into the critical compensation-related matters that defined the 2026 proxy season, offering insights into key trends, shareholder engagement, and the evolving landscape of executive remuneration oversight.

Summary of Key Trends

The 2026 proxy season underscored a prevailing shareholder confidence in executive compensation structures, with "Say on Pay" votes continuing to achieve impressive approval rates. This trend is supported by data indicating a sustained high percentage of majority support, with minor but noteworthy shifts in average support levels. The methodologies employed by proxy advisors, particularly ISS, in evaluating these proposals also remain a significant factor, with their recommendations demonstrably influencing shareholder outcomes. Furthermore, regulatory bodies, such as the Securities and Exchange Commission (SEC), are contemplating adjustments to disclosure requirements, a move that could reshape how executive compensation information is presented to the public. Finally, the voting on equity compensation plans, a vital tool for aligning executive and shareholder interests, also exhibited stable, high approval rates, albeit with subtle shifts in the number of proposals and ISS recommendations.

A. Strong Say on Pay Results

The 2026 proxy season continued a positive trajectory for "Say on Pay" votes, demonstrating a persistent shareholder endorsement of executive compensation packages. The number of failed "Say on Pay" votes remained notably low across major market indices. For the first half of 2026, the S&P 500 saw an average shareholder support of approximately 91%, a slight increase from 90% in the same period of 2025. Similarly, the broader Russell 3000 index reported an average support of 92%, up from 91% in the prior year.

Table 1: Say on Pay Results – H1 2026 vs. FY 2025

(Arrows indicate change from H1 2025; ‘=’ indicates consistency)

The number of companies experiencing failed "Say on Pay" votes—those failing to achieve majority shareholder support—continued its downward trend. Among S&P 500 companies, only four proposals failed in the first half of 2026, a decrease from five in the comparable period of 2025. For the Russell 3000, 21 proposals failed, down from 27 in H1 2025, marking a 12-year low for this broader index. Across both indices, an overwhelming 99% of "Say on Pay" proposals received majority approval, a consistent performance from previous years.

Delving deeper into industry performance within the S&P 500, the communication services sector registered the lowest average support at approximately 74%. Conversely, the energy and materials sectors demonstrated the highest shareholder endorsement, averaging around 95%. The sectors experiencing failed "Say on Pay" votes in H1 2026 included healthcare, technology, communication services, and real estate. This contrasts with H1 2025, where the healthcare, technology, industrial, and real estate sectors faced similar challenges.

Turnover in Failed Votes Declines:

A more granular analysis reveals a significant shift in the persistence of negative "Say on Pay" votes. The rate of year-over-year turnover in failed votes declined substantially in H1 2026. Of the S&P 500 companies that failed in 2025, two out of four achieved majority support in 2026, a marked decrease from the 100% success rate in reversing prior failures observed in H1 2025. For the Russell 3000, 22 out of 25 companies that failed in 2025 successfully regained majority support in 2026, representing an 88% turnover rate, down from 95% in H1 2025.

This decline in turnover suggests a growing trend of "stickier" negative votes. Furthermore, among the S&P 500 companies that failed in 2025 and subsequently passed in H1 2026, only one secured over 70% support, a significant drop from all four in H1 2025. For the Russell 3000, 17 out of the 22 companies that transitioned from failure to success in 2026 achieved over 70% support, a slight increase from 12 out of 18 in H1 2025.

However, a concerning trend emerged for a subset of companies. Out of the 21 Russell 3000 companies that failed in H1 2026, three had also experienced a failed vote in the prior year, and an additional eight had garnered less than 70% support. This indicates a growing segment of companies struggling to regain shareholder confidence after initial compensation concerns. For the first time in over five years, half of the S&P 500 companies that faced failed "Say on Pay" votes did not achieve majority support in the subsequent vote.

B. Overall ISS Approach on Say on Pay Evaluation

Institutional Shareholder Services (ISS), a prominent proxy advisory firm, continues to exert considerable influence over "Say on Pay" outcomes. Its recommendations are a critical factor for many institutional investors when casting their votes. In H1 2026, proposals receiving a negative ISS recommendation saw significantly lower shareholder support: approximately 28% less at S&P 500 companies and 21% less at Russell 3000 companies, compared to proposals that received ISS endorsement.

Table 2: S&P 500 Companies with Negative ISS Recommendations

(Arrows indicate change from H1 2025; ‘=’ indicates consistency)

The primary drivers behind ISS’s negative recommendations in 2026 largely mirrored those of previous years, with a pronounced emphasis on the misalignment between CEO pay and shareholder returns. Other significant concerns included performance goals that were deemed limited, opaque, or undisclosed; the impact of one-off awards leading to inflated executive compensation; and the reliance on subjective criteria for compensation determination. The ongoing global economic uncertainty suggests that ISS will likely maintain its focus on these pay-for-performance and compensation size-related issues in the upcoming 2027 proxy season.

ISS employs a multi-faceted approach to evaluate "Say on Pay" proposals, assigning companies a "high," "medium," or "low" level of concern across five key criteria. As observed in Table 2, "Pay for Performance" remains the most critical factor correlating with negative ISS recommendations. The percentage of negative recommendation reports citing "high" concern for pay for performance increased to 92% in H1 2026, up from 80% in H1 2025, significantly outweighing the next most prevalent concern by over 75 percentage points.

Compensation committee communication and responsiveness also continued to be a significant factor. Six companies received a negative recommendation and a "high" concern rating in this area, with one company flagged solely on this criterion, despite receiving "low" concern ratings for quantitative and qualitative pay-for-performance metrics. This highlights the importance of proactive and transparent engagement with shareholders on compensation matters.

Severance arrangements, while a persistent area of shareholder concern and a prevalent topic in compensation-related shareholder proposals, saw a decrease in "high" concern ratings from ISS. Only three companies received such a rating in H1 2026, down from five in H1 2025. This is notable given that severance remains the most common issue in compensation-related shareholder proposals, representing approximately 36% of such proposals in H1 2026, despite a 65% decrease in the total number of such proposals compared to H1 2025.

C. Details on ISS’s Application of its Pay for Performance Policies in H1 2026

ISS’s methodology for evaluating pay for performance has remained largely consistent since its inception in 2012, focusing on both quantitative and qualitative assessments. The quantitative analysis involves a review of the alignment between pay and total shareholder return (TSR) over multiple periods. Even if a company achieves a "low" concern rating in the quantitative model, ISS will conduct a qualitative review of the Compensation Discussion and Analysis (CD&A) and incentive programs for any noteworthy issues. Problematic incentive designs, such as guaranteed multiyear payments, discretionary pay components, excessive perquisites, or poorly defined performance goals, can elevate a company’s concern level to "high" despite a favorable initial quantitative assessment.

Quantitative Analysis Components:

ISS’s quantitative pay-for-performance screen, which was slightly modified in December 2025, utilizes four key measures:

• Relative Degree of Alignment (RDA): Assesses the alignment of CEO pay with relative TSR.
• Multiple of Median (MOM): Compares CEO pay to the median pay of a peer group.
• Pay TSR Alignment (PTA): Measures the alignment of pay with TSR over a five-year period.
• Four-Year Average TSR Performance (FPA): Evaluates the company’s TSR performance over a four-year period, serving as a potential modifier to the primary quantitative score.

Thresholds for Concern:

Specific thresholds are established for "medium" and "high" concern levels for non-S&P 500 companies:

For S&P 500 companies, slightly lower thresholds are applied due to increased investor scrutiny of large-cap executive compensation:

ISS assigns an initial quantitative score based on these measures. The FPA score can then modify this initial score if a company exhibits "medium" concern under any of the three primary measures, "low" concern bordering on "medium," or a single elevated concern. This layered approach allows for a nuanced assessment of pay-for-performance alignment.

Qualitative Review and Key Concerns:

In H1 2026, ISS placed a slightly greater emphasis on quantitative pay-for-performance factors, with 14 out of 36 companies receiving negative recommendations despite only "low" overall concern on the quantitative screen. This was a modest decrease from 19 out of 40 in H1 2025 but remained higher than H1 2024 levels. Three companies faced negative recommendations despite "low" concern on both quantitative and qualitative screens, suggesting a potential shift towards a more stringent application of quantitative metrics.

The FPA’s impact was varied, with no companies moving from "low" to "medium" concern due to FPA adjustments in H1 2026, compared to three in H1 2025. One company moved from "medium" to "high" concern, down from two in the prior year.

The qualitative review by ISS continued to focus on several critical areas. Limited, opaque, or undisclosed performance goals remained the most frequently cited factor, impacting 27 of the 36 S&P 500 companies receiving negative recommendations. This issue has consistently been a top concern for ISS since 2020, underscoring the demand for clear and measurable performance metrics tied to executive pay.

The granting of one-off awards resulting in high executive compensation emerged as the second most frequently cited qualitative factor. Over half of the S&P 500 companies with negative recommendations (25 out of 36) were flagged for large recruitment, retention, performance, front-loaded, or off-cycle awards. This indicates a heightened scrutiny of significant, non-recurring awards, particularly when they inflate executive compensation without a clear rationale or robust disclosure.

The use of subjective information to determine compensation also saw an increased focus, with 23 out of 36 companies criticized for relying on subjective criteria. This often involved compensation committee discretion or subjective assessments without clearly defined quantified performance goals, metric weightings, or payout opportunities. ISS’s emphasis here aligns with the broader corporate governance push for objective and transparent incentive compensation programs.

Other qualitative concerns identified by ISS included:

• Incentive plan design flaws: Such as excessive equity grants, inappropriate vesting schedules, or lack of robust performance conditions.
• Peer group benchmarking issues: Where the chosen peer group for compensation comparison was deemed inappropriate or not representative.
• Lack of shareholder responsiveness: Failure to adequately address shareholder concerns raised in previous "Say on Pay" votes.
• Excessive severance or change-in-control payments: Payouts deemed disproportionate or triggered under questionable circumstances.

D. SEC Proposal to Scale Executive Compensation Disclosure Requirements

In a significant development, the U.S. Securities and Exchange Commission (SEC) proposed on May 19, 2026, to substantially revise the public company filer status framework. The proposed changes aim to reduce regulatory burdens, particularly for smaller and non-accelerated filers. The SEC estimates that approximately 81% of reporting companies would qualify as "non-accelerated filers" under the new framework.

Under the proposed rules, non-accelerated filers would face significantly scaled-back executive compensation disclosure requirements. This would include providing only two years of Summary Compensation Table information for three named executive officers, instead of the current five. Crucially, these companies would be exempted from providing a Compensation Discussion and Analysis (CD&A), CEO pay ratio disclosures, and pay-versus-performance disclosures. Furthermore, several detailed compensation tables, such as those for Grants of Plan Based Awards, Option Exercises and Stock Vested, Pension Benefits, and Nonqualified Deferred Compensation, would become optional.

Perhaps most impactful for corporate governance, non-accelerated filers would also be exempt from the requirement to hold advisory votes on "Say on Pay," "Say on Pay Frequency," and "Golden Parachute" arrangements. If adopted, this proposal would represent a considerable reduction in disclosure and voting requirements for a vast majority of U.S. public companies, potentially altering the transparency and shareholder oversight landscape for executive compensation. The proposal is currently undergoing SEC review, and the final scope and implementation timeline remain uncertain.

E. Equity Compensation Plan Voting

Shareholder support for equity compensation plans, designed to align employee and executive interests with those of shareholders, remained strong during the H1 2026 proxy season. The average support for proposals to adopt or amend omnibus stock plans stood at approximately 92% among S&P 500 companies and 87% among Russell 3000 companies. These figures are largely consistent with the 90% and 88% support levels observed in H1 2025, respectively.

Table 3: Voting on Adoption/Amendment of Omnibus Stock Plans

(Arrows indicate change from H1 2025; ‘=’ indicates consistency)

The number of proposals voted on saw an increase in H1 2026, with 101 proposals for S&P 500 companies and 631 for Russell 3000 companies, compared to 92 and 667, respectively, in the prior year. This suggests a continued reliance on equity-based compensation structures across a broad spectrum of U.S. listed companies, as mandated by stock exchange rules.

ISS employs an "equity scorecard" approach to assess these plans, considering factors across three main categories: plan cost, plan generosity, and the company’s equity granting practices. While ISS recommendations against equity plan proposals saw a slight increase, particularly for Russell 3000 companies (36% in H1 2026 vs. 34% in H1 2025), the impact on overall pass rates remained minimal. No equity plans failed to pass among S&P 500 companies, mirroring the H1 2025 results. However, the number of failed proposals in the Russell 3000 increased to five, up from two in H1 2025.

ISS cited reasons such as broad discretionary accelerated vesting authority, excessive plan costs, liberal share recycling policies, and incomplete or discretionary change-in-control vesting treatments for its negative recommendations. Despite these negative recommendations, the vast majority of proposals, including all at S&P 500 companies and all but five at Russell 3000 companies, secured majority shareholder support.

The influence of ISS recommendations, while not preventing passage, continued to affect the magnitude of shareholder support. For equity plan proposals at S&P 500 companies, average support was 96% when ISS recommended "for" approval, and 78% when ISS recommended "against." This demonstrates the persistent impact of proxy advisor guidance on the extent of shareholder endorsement, even for generally well-received compensation tools. The 2026 proxy season underscored the ongoing dialogue between corporations, shareholders, and proxy advisors concerning executive compensation, with a clear emphasis on performance alignment, transparency, and responsible governance.