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Institutional Shareholder Services (ISS) has published its U.S. benchmark policy updates for the upcoming proxy season, which will take effect for shareholder meetings on or after Feb. 1, 2026¹. As detailed below, the revisions mirror the changes ISS proposed in October and are concentrated around the following topics: multi-class capital structures, executive and non-employee (NED) compensation, and environmental and social (E&S) shareholder proposals. Notably, ISS is adopting a more flexible approach to certain issues, including giving companies more latitude in their choice of equity pay awards and their responsiveness to say-on-pay (SOP) votes, as well as moving away from its default position of supporting specific categories of E&S resolutions.

ISS has additionally made minor edits to the policy document, including eliminating information that is duplicated in its U.S. Peer Group, U.S. Executive Compensation Policies and U.S. Equity Plans FAQs, which will be updated in mid-December.

Problematic Capital Structure/Unequal Voting Rights

ISS is eliminating inconsistencies in its treatment of capital structures with unequal voting rights by considering them problematic regardless of whether superior voting shares are classified as “common” or “preferred.”  Preferred shares that only have voting rights with respect to items that affect their class of holders are not considered problematic.

ISS will oppose management proposals to create a new class of preferred stock with voting rights superior to the common stock with the following exceptions:

• Convertible preferred shares that vote on an “as converted” basis; or
• The enhanced voting rights of the preferred shares are limited in duration and applicability and are voted in a way that mirrors the votes of the common shares.

The same exceptions will apply to ISS’s policy of recommending against directors, committee members or the full board (other than new nominees) at companies that maintain multi-class capital structures with unequal voting rights.

 Long-Term Alignment in Pay-for-Performance (PFP) Evaluation

ISS is extending the time horizon of its U.S. PFP quantitative screens (Relative Degree of Alignment and Financial Performance Assessment) from three years to five years to better reflect how investors assess a company’s long-term performance when evaluating CEO compensation relative to peers.

ISS’s assessment of pay quantum (Multiple of Median test) will now incorporate both one-year and three-year views of CEO pay relative to peers to smooth out short- to mid-term fluctuations, unusual one-time events, or external factors.

 Time-Based Equity Awards with Long-Term Time Horizon

ISS is taking a more flexible approach in evaluating the equity pay mix in its PFP qualitative analyses whereby time-based equity awards with extended time horizons will be viewed positively.

Although ISS did not provide further details, a plurality of investor respondents to its 2025 policy survey considered time-based awards with three-year vesting plus a two-year post-vesting retention requirement to be sufficiently long-term to dispense with performance requirements for part or all of executives’ long-term incentive awards.

Company Responsiveness to SOP Votes

ISS will be more flexible towards company responsiveness to a low (less than 70%) SOP vote in the prior year in cases where shareholder feedback is difficult to obtain because of recent SEC guidance regarding Schedule 13G (passive) versus Schedule 13D (active) filing status for institutional investors.  If a company discloses that it attempted but failed to elicit sufficient feedback from its investors, ISS will assess the company’s actions taken in response to the vote and how they are beneficial to shareholders when recommending on the reelection of compensation committee members.

ISS has also clarified the factors it considers in the case of low SOP support related to an unusual situation, such as a proxy contest, merger or bankruptcy.  In addition to the disclosure of engagement efforts and relevant compensation actions, ISS will take into account significant board turnover.

High NED Pay

ISS is expanding its policy on high NED compensation, allowing for adverse recommendations against the responsible board committee in the first year of occurrence of highly problematic pay or when a pattern emerges across non-consecutive years.  Currently, negative recommendations are only triggered after two or more consecutive years of excessive NED pay absent a compelling rationale or other mitigating factors.

Problematic NED pay practices include large pay magnitude; performance awards, retirement benefits and excessive perquisites; and inadequate disclosure of the rationale for unusual payments.  NED pay practices that are only marginally problematic in the absence of other escalatory factors or multi-year patterns will continue to receive warnings only.

Equity Plan Scorecard (EPSC) Enhancements

ISS is adding a new scoring factor under the Plan Features pillar of its EPSC that will assess whether equity plans that include NED participation disclose cash-denominated award limits, which is considered best practice.  For 2026, the NED individual award limit factor will only apply to S&P 500 and Russell 3000 ESPC models.

ISS is also introducing a new overriding negative factor where an equity plan proposal will receive a negative recommendation if it lacks sufficient positive features under the Plan Features pillar, despite an overall passing score.  For 2026, this will apply to S&P 500, Russell 3000, and non-Russell 3000 EPSC models.

E&S Shareholder Proposals

ISS is implementing a fully case-by-case approach to shareholder proposals on diversity, political contributions, human rights and climate change/greenhouse gas emissions to reflect shifting investor sentiment, declining support for such proposals, regulatory changes and evolving company practices.  Currently, ISS generally recommends in favor of such proposals, though its level of support has been falling in recent years.²

Globally, ISS will continue to apply a consistent case-by-case framework to its evaluation of E&S proposals.  It is adding a new factor on whether the proposal addresses substantive matters that impact shareholders’ interests, including shareholder rights.