Dan Pliskin, Jim Barnett, and Rachael Harrison, Partner, Associate Partner, and Director respectively at Aon plc, have outlined a critical roadmap for corporate compensation committees and management teams navigating the complexities of special equity awards. Their recent memorandum, analyzed here, highlights the increasing scrutiny these awards face from proxy advisors and investors, particularly in light of the 2026 proxy season’s findings. While overall "say on pay" results demonstrated robust shareholder support, a significant number of companies that received weak or failed support had utilized one-time equity grants, underscoring the need for meticulous design and transparent communication.
The landscape of executive compensation is continually evolving, with boards of directors exercising their judgment to implement special equity awards. These awards are intended to address specific business needs that fall outside the scope of regular compensation programs. However, the effectiveness and shareholder acceptance of these discretionary grants hinge on the board’s ability to demonstrate that such decisions were well-considered and unequivocally aligned with shareholder interests. The 2026 proxy season served as a stark reminder of this imperative, revealing a pattern where otherwise strong compensation packages were overshadowed by poorly justified or inadequately explained special awards.
Special Awards Stood Out in a Strong Say on Pay Year
The 2026 proxy season presented a predominantly positive picture for "say on pay" votes across the market. The median support among Russell 3000 companies reached an impressive 95.4%, marking an all-time low failure rate of 0.8%. This broad-based approval suggests a general shareholder satisfaction with executive compensation practices. However, a closer examination reveals a critical nuance: one-time equity awards played a disproportionately significant role among the minority of companies that experienced negative voting outcomes.
According to data compiled by ISS STOXX, nearly half of the Russell 3000 companies that failed to secure adequate "say on pay" support, or received less than 70% approval, had granted a one-time award to a named executive officer (NEO). This trend is not isolated; the frequency and magnitude of these awards are on the rise. ISS-Corporate reports that the percentage of Russell 3000 companies granting a one-time award to an NEO in fiscal year 2025 increased to 27.3%, up from 25.1% in fiscal year 2024. Furthermore, the proportion of these awards exceeding $20 million more than doubled during the same period.
This surge in prevalence and value means that in an environment where shareholder approval is the norm, a special equity award that is not thoughtfully designed and clearly articulated can easily become the outlier, drawing unwanted attention and potentially undermining an otherwise sound compensation strategy. The sources for these statistics, ISS STOXX’s "2026 U.S. Proxy Season Review. Compensation" and ISS-Corporate’s "2026 U.S. Compensation Post Season Review. Strong Investor Support Despite Resurgence of One Time Grants," highlight the growing importance of these awards in the shareholder voting calculus.
Characteristics of a Defensible Award
Special equity awards are typically employed to address one of four common scenarios:
- Retention of Key Talent: To incentivize executives to remain with the company during critical periods, such as during a merger, acquisition, or significant organizational change.
- Attraction of New Talent: To secure the services of high-caliber executives from competitors, especially for roles critical to future growth or turnaround initiatives.
- Recognition of Exceptional Performance: To reward extraordinary achievements that go beyond the scope of standard performance metrics and warrant a significant, one-time acknowledgment.
- Alignment with Strategic Objectives: To drive specific, long-term strategic goals that require a substantial, long-term incentive, such as the successful execution of a complex new business venture or a major turnaround plan.
Awards that successfully withstand proxy advisor and investor scrutiny generally pass a straightforward, albeit rigorous, test: the board must be able to concisely and compellingly explain precisely why the award was granted to a specific executive, at a particular dollar amount, and at a defined point in time. Crucially, boards must also consider how this rationale will age over time. For instance, an award designed to support a leadership transition is relatively easy to justify if the transition unfolds as planned. However, if the transition falters or is delayed, the award’s rationale can become significantly harder to defend.
Repeat awards, in particular, warrant extreme caution. Proxy advisory firms like ISS hold the expectation that one-time awards should be precisely that – isolated and non-routine. The repeated issuance of special awards can signal a departure from established compensation policies and raise concerns about the integrity and predictability of the overall pay structure.
Proxy Advisor and Investor Expectations
Institutional Shareholder Services (ISS) and Glass Lewis, the two preeminent proxy advisory firms, meticulously review special equity awards on a case-by-case basis. Their expectations, while nuanced, largely overlap and center on transparency, justification, and alignment with shareholder interests. Key expectations include:
- Clear and Compelling Rationale: The award must be supported by a strong, documented business rationale that clearly articulates the specific circumstances necessitating a departure from the regular compensation program. This rationale should detail the strategic importance of the executive’s role and the unique contribution the award aims to incentivize or retain.
- Alignment with Strategic Goals: Special awards should be demonstrably linked to the achievement of significant, measurable strategic objectives that are critical to the company’s long-term success. This linkage should be clearly articulated and quantifiable where possible.
- Proportionality and Reasonableness: The size and structure of the award should be proportionate to the strategic objective it aims to achieve and reasonable in the context of the company’s overall compensation philosophy, financial performance, and peer group practices. Excessive awards, even with a strong rationale, can be viewed negatively.
- Performance Conditions: Where feasible, awards should be tied to specific, challenging, and time-bound performance conditions that are within the executive’s control. This ensures that the award is earned and reflects genuine value creation.
- Transparency and Disclosure: Comprehensive disclosure is paramount. Companies must provide detailed information about the award, including its purpose, the performance metrics (if any), the valuation methodology, and the specific circumstances that led to its approval. This disclosure should be readily accessible in the company’s proxy statement.
- Limited Scope and Duration: Special awards should be clearly presented as one-time events, not as a precedent for future grants. The rationale should emphasize the unique, non-recurring nature of the circumstances.
Beyond an adverse "say on pay" recommendation, significant or egregious compensation concerns stemming from special awards can have tangible repercussions for the compensation committee members themselves. Glass Lewis, for instance, has explicitly identified problematic "megagrants" as a potential basis for recommending against the compensation committee chair. This highlights the personal accountability that board members face in their oversight of executive compensation.
Large institutional investors, such as BlackRock, echo these sentiments. In their 2026 Global Voting Spotlight, which covered the period from July 1, 2025, through June 30, 2026, BlackRock reported supporting approximately 90% of compensation-related management proposals in the Americas. However, they continued to oppose U.S. programs that incorporated substantial "outside of program" awards without a robust strategic rationale, demonstrating a consistent focus on the justification and alignment of such grants.
A Roadmap for Compensation Committees and Management Teams
To effectively navigate the complexities of special equity awards and enhance the likelihood of positive shareholder reception, Aon plc’s experts propose a five-step roadmap. This structured approach guides compensation committees and management teams from the initial conception of an award through the critical "say on pay" vote.
Step 1. Test the Award Before Approval
The crucial first step involves rigorous internal vetting of any proposed special award before it receives formal board approval. This proactive assessment aims to identify potential pitfalls and ensure alignment with shareholder expectations. The compensation committee should undertake the following actions:
- Validate the Strategic Rationale: Is there a clear, compelling, and defensible business need for this award? Does it align with the company’s long-term strategy and critical objectives? Can this rationale be clearly articulated to external stakeholders?
- Assess Size and Structure: Is the award size appropriate and proportionate to the intended objective and the executive’s contribution? Does the structure (e.g., vesting schedules, performance conditions) adequately incentivize the desired behavior and align with shareholder interests?
- Benchmark Against Peers: How does this award compare to similar grants made by peer companies for comparable circumstances? While not the sole determinant, benchmarking provides valuable context and can help justify the award’s magnitude.
- Consider the "Aging" Factor: How will this award look in one, two, or five years? Will the initial rationale remain credible, especially if circumstances change or performance deviates from expectations?
Step 2. Engage Shareholders Early
Proactive engagement with major shareholders, where timing permits, can provide invaluable directional feedback on how these investors might perceive the award’s rationale, size, and design. This early dialogue offers an opportunity to make adjustments while there is still flexibility to do so. Companies must carefully navigate these conversations, particularly regarding potentially material non-public information. Collaboration with legal counsel is essential to structure engagement in compliance with Regulation FD, potentially focusing on general design principles rather than specifics of a planned grant.
The process begins with a thorough understanding of the shareholder base: identifying significant holders, reviewing their past "say on pay" voting records, understanding the voting policies they apply, and determining who their voting decision-makers are. The objective of this engagement is to listen and gather insights, not to seek formal assent. The ultimate decision-making authority remains with the board.
Engagement can also be highly beneficial after an award is announced but before the proxy statement is officially filed. For companies operating on a calendar fiscal year, this period often spans the fall through early winter. It provides a crucial window to offer context for the award and to understand what additional disclosures investors might find helpful. This outreach should encompass shareholders who have historically supported "say on pay" proposals as well as those who have opposed them. It is particularly valuable for a compensation committee member to participate when discussions turn to the board’s judgment, offering direct insight into the decision-making process. Some passive investors may limit their feedback to maintain their Schedule 13G eligibility, making subsequent meetings with proxy advisors an important avenue to provide further context.
Step 3. Explain the Award at Grant
The Form 8-K filing often serves as the initial public explanation of a special equity award. Item 5.02(e) of the SEC’s disclosure rules generally mandates a filing within four business days of a material grant or award to an NEO. However, an instruction excludes grants that are "materially consistent with the previously disclosed terms of an existing plan or arrangement." Companies must consult with legal counsel to determine if a special award falls within this exclusion.
While Item 5.02(e) technically requires only a brief description of the arrangement and associated payment amounts, companies can and should go further. By proactively explaining why the compensation committee made the award, they provide an early, albeit preliminary, version of the rationale that will be more fully elaborated in the proxy statement.
Even in instances where an 8-K filing is not strictly required, a voluntary filing can be a powerful tool. It allows the company to explicitly detail the award’s rationale, any performance conditions attached, and its non-recurring nature from the outset. This voluntary disclosure can significantly facilitate informed shareholder discussions. Given that the Form 8-K will likely serve as a reference point for the Compensation Discussion and Analysis (CD&A) section of the proxy statement, consistency is key. Companies should consider filing the award agreement itself with the Form 8-K rather than waiting for the next periodic report, further enhancing transparency.
Step 4. Present the Rationale in the Proxy Statement
The Compensation Discussion and Analysis (CD&A) within the annual proxy statement is the primary vehicle for presenting the comprehensive rationale behind any special equity award. ISS, in particular, relies heavily on the proxy statement for its evaluations. Information that is not fully disclosed here is generally unlikely to be considered by proxy advisors as a mitigating factor for adverse recommendations.
Effective disclosure should lead with the business rationale and the design of the award, establishing a strong context before detailing the award values. Companies should consider addressing the following key elements within the CD&A:
- Strategic Context: Clearly articulate the specific business circumstances that necessitated the special award, linking it to the company’s strategic priorities and long-term objectives.
- Executive Role and Contribution: Detail the critical role of the executive receiving the award and the specific contributions expected or already made that warrant this exceptional recognition.
- Award Design and Mechanics: Explain the structure of the award, including the type of equity, vesting schedules, and any performance-based vesting conditions.
- Performance Metrics and Targets: If performance conditions are attached, clearly define these metrics, the targets that must be achieved, and the timeframe for achievement. The rigor and achievability of these targets should be evident.
- Valuation and Rationale for Size: Provide a clear explanation of how the award’s value was determined and why that specific amount is considered appropriate given the circumstances and the executive’s potential impact. This may involve reference to internal valuation models or external benchmarks.
- Non-Recurring Nature: Reiterate that the award is a one-time grant intended to address unique circumstances and is not setting a precedent for future compensation practices.
- Alignment with Shareholder Interests: Explicitly state how the award is designed to align the executive’s interests with those of shareholders and drive long-term value creation.
Step 5. Set Expectations and Prepare to Respond
Even the most meticulously crafted disclosure cannot entirely compensate for a fundamental misalignment between executive pay and company performance. A substantial special award, by its nature, inflates reported pay in the year it is granted. If this coincides with weak shareholder returns, the possibility of an adverse "say on pay" recommendation remains a significant concern. The ultimate goal of comprehensive disclosure, therefore, is not necessarily to guarantee a favorable recommendation, but rather to equip shareholders, many of whom operate under their own voting policies, with sufficient information to evaluate the award on its merits.
Compensation committees must also proactively plan their response strategies. Any written communication intended to influence shareholders regarding a published ISS report must typically be filed publicly. Filings made less than five business days before a shareholder meeting generally have limited impact on proxy advisor recommendations.
If "say on pay" support falls below critical thresholds – specifically, below 80% according to Glass Lewis or 70% according to ISS – the following year’s proxy statement should include a detailed discussion of shareholder engagement, the specific concerns raised by shareholders, and the company’s response. Credible responses are typically forward-looking, such as a commitment to refrain from granting special awards for a defined period or a clear plan to address the identified pay-for-performance disconnect. It is also important to note that under current proxy advisor methodologies, a one-time award can influence pay-for-performance assessments over a multiyear period, even after the grant year, further emphasizing the need for careful consideration and communication.
