ISS aims for stricter executive pay scrutiny and governance reforms in 2026 benchmark policy updates

ISS Governance has opened a public comment period on its proposed benchmark policy changes for 2026, signalling a shift in emphasis towards director and executive compensation matters, which is notable given the organisation’s relative restraint in compensation-related updates in recent years. This consultation follows the release of ISS’s 2025 Global Benchmark Policy Survey results in September, which gathered input from institutional investors, companies, and other market participants, and the final policies are expected to be announced before the end of November 2025. These updated guidelines will generally apply to shareholder meetings held on or after February 1, 2026.

Central to the proposed changes in the United States is a tightening stance on high nonemployee director (NED) pay. ISS plans to broaden its existing policy that targets problematic NED compensation practices, allowing for adverse vote recommendations against the relevant board committee responsible for setting NED pay when a pattern of excessive compensation or particularly egregious first-year circumstances emerges. These could include excessive total pay magnitude, problematic perquisites, or overly generous performance awards, stock options, or retirement benefits. However, ISS maintains flexibility, indicating that isolated or marginally problematic practices will not automatically trigger negative recommendations but may still result in warnings.

ISS also aims to enhance company responsiveness in the context of low executive compensation say-on-pay support, specifically when a company garners less than 70% of votes cast. Recognising recent Securities and Exchange Commission (SEC) guidance that complicates shareholder engagement by institutional investors, ISS proposes more leniency for companies that demonstrate meaningful engagement efforts but fail to obtain specific feedback. Additionally, significant corporate events such as mergers or proxy contests will be accounted for when evaluating a company’s response to shareholder dissent on compensation.

A key update involves ISS’s pay-for-performance evaluation, extending the quantitative assessment timeframe from three to five years. This change reflects investor preferences for a longer-term view when assessing executive compensation relative to company performance, aiming to smooth over short-term fluctuations due to one-off events or external market factors. The emphasis is on rewarding sustained value creation over time. In tandem, ISS proposes a more flexible qualitative review of equity awards, highlighting that long-term time-based awards with extended vesting or retention schedules will be viewed favourably, even if they constitute a majority or entirety of the equity pay mix. This evolution mirrors ongoing investor conversations and SEC review of executive compensation disclosures that support a broader consideration of pay structures.

Other significant revisions include enhancements to the Equity Plan Scorecard (EPSC). ISS will introduce a new factor under the Plan Features pillar to assess whether equity plans that cover nonemployee directors disclose limits on cash-denominated awards. Moreover, a new negative overriding factor would result in automatic adverse recommendations against equity plan proposals lacking sufficient positive features under this pillar, even if the overall score passes. Certain exemptions will apply for smaller companies, initial public offerings, and spinoffs in 2026.

Beyond compensation, ISS is proposing changes to governance policies concerning problematic capital structures, particularly those with unequal voting rights. The scope will expand to encompass any multi-class voting structures with unequal rights, including those with shares classified as preferred. Exceptions will apply for convertible preferred shares voting on an “as-converted” basis and for temporary enhanced voting rights designed to address issues such as low turnout on noncontroversial agenda items. ISS will also generally recommend opposing new dual-class capital structure proposals that establish preferred stock with superior voting rights, aside from specific exceptions.

Environmental and social (E&S) shareholder proposals are facing a notable shift from ISS. Whereas such proposals on diversity and equal opportunity, political contributions, human rights, and climate change had previously enjoyed a presumption of support, ISS is moving towards a more nuanced, case-by-case evaluation. This reflects changing investor sentiment, regulatory developments, and the increased adoption of relevant corporate practices. The policy revision is accompanied by an expanded set of factors for assessing these proposals’ impact on shareholder interests and rights globally.

Director overboarding policies remain under review, with ISS not proposing changes for 2026 at this time.

The consultation period, which invited public comments on these significant alterations, closed on November 11, 2025. Final policy updates are anticipated to be published shortly thereafter, shaping the governance and compensation landscape for the coming year. Industry commentators such as Cooley LLP, Pearl Meyer, Mercer, Baker Botts, and Meridian Compensation Partners have highlighted the careful calibration in ISS’s approach, balancing stricter oversight on pay practices with recognition of evolving investor attitudes towards long-term incentive structures and governance complexities. This planned overhaul of ISS’s benchmark policies underscores a continued commitment to enhancing shareholder value through refined governance standards, especially in the realm of executive remuneration and corporate capital frameworks.