Proxy Advisors Signal Shift on CEO Pay

HR Policy Association’s Center On Executive Compensation defended flexibility in structuring executive incentives in comments to ISS and Glass Lewis, responding to their 2024 policy benchmarking surveys which are used to shape future policy.

Our take: Time-based awards are an appropriate form of incentive – but so are carefully tailored performance awards.

• ISS and Glass Lewis seem to be bowing to pressure from European investors including Norges Bank, who recently posted that proxy advisors have a “love affair with performance metrics” but believe the plans lead to excessive CEO pay and “significantly worse returns for shareholders.”

• Companies should not be penalized for using time-based awards rather than performance awards if that is the best form of incentive to achieve goals. 

Our take: There is no one-size-fits-all disclosure of Human Capital Metrics.

• Given the SEC’s inability to push through aggressive climate rules or even propose HCM rules, ISS is taking matters into their own hands by suggesting support for these shareholder proposals.  

• Investor concerns should be discussed through regular shareholder channels, not a “one-size-fits-all policy” that would require companies to disclose non-financial metrics for which no reporting standard exists.

Next steps: ISS publishes survey results later this month, with proposed updates to their proxy voting guidelines in October. 

• The Center will monitor developments and submit further comments on behalf of our members as necessary.

Meanwhile, 2020 Center-backed reform rules requiring proxy advisors to provide companies with their recommendations at the same time as shareholders, remain embroiled in legal challenges.

• Why it matters: The Fifth Circuit ruled in favor of the 2020 reform, the Sixth Circuit ruled against it, and a DC appellate court ruled that the SEC lacks rulemaking authority over proxy advisors. These conflicting rulings leave no indication of whether reforms will survive.

• What’s next: The Supreme Court can resolve splits in the Circuits but it is unclear whether the Court would be willing to hear the case.