On November 14, 2024, Glass Lewis published its 2025 U.S. Benchmark Policy Guidelines (U.S. Guidelines), and its 2025 Shareholder Proposals & ESG-Related Benchmark Policy Guidelines (ESG Guidelines), both effective for shareholder meetings held on or after January 1, 2025. On December 17, 2024, ISS Governance published its Benchmark Policy Changes for 2025: U.S., Canada, and Americas Regional (ISS Guidelines), effective for shareholder meetings held on or after February 1, 2025.¹ This alert summarizes updates made to these voting policy guidelines.

Glass Lewis—U.S. Guidelines

Guidelines Relating to Election of Directors.

• Board Oversight of Artificial Intelligence (AI). Glass Lewis added a new section on board oversight of AI-related risks. Glass Lewis will generally refrain from providing vote recommendations based on oversight or disclosures regarding AI-related issues. However, if there is evidence that insufficient oversight and/or mismanagement of AI technologies have caused material harm to shareholders, Glass Lewis will review the company's overall governance practices, including the board's response to and management of AI-related issues, as well as any associated disclosures. Glass Lewis may recommend against director nominees who are responsible for oversight of AI-related risks if the board's oversight, response, or disclosure regarding AI-related issues is insufficient. Glass Lewis encourages all companies that develop or use AI in their operations to disclose the board’s role in AI oversight and how companies are ensuring their directors are fully versed on this issue.
• Board Responsiveness to Shareholder Proposals. Glass Lewis updated its guidelines to provide that where a shareholder proposal receives significant support (i.e., more than 30 percent but less than a majority of votes cast), boards should 1) engage with shareholders on the issue and 2) provide disclosure addressing shareholder concerns and outreach initiatives. Glass Lewis continues to expect clear action from the board when shareholder proposals receive majority support including, for example, by fully implementing the request and/or engaging with shareholders on the issue and providing sufficient disclosures to address shareholder concerns.

Guidelines Relating to Advisory Vote on Executive Compensation (Say-on-Pay).

• Executive Compensation Programs. Glass Lewis revised its guidelines to emphasize its “holistic approach to analyzing executive compensation programs.” Glass Lewis analyzes executive pay programs case-by-case, and reviews “all factors related to named executive officer compensation, including quantitative analyses, structural features, the presence of effective best practice policies, disclosure quality and trajectory-related factors. Except for particularly egregious pay decisions and practices, no one factor would ordinarily lead to an unfavorable recommendation without a review of the company’s rationale and/or the influence of such decisions or practices on other aspects of the pay program, most notably the company’s ability to align executive pay with performance and the shareholder experience.”
  
  The revised guidelines also state that while Glass Lewis understands that regulatory disclosure rules may condone the omission of key executive compensation information, Glass Lewis believes that “companies should provide sufficient information in the proxy statement to enable shareholders to vote in an informed manner.”
• Responses to Say-on-Pay Proposal. Glass Lewis revised its guidelines to indicate that the compensation committee’s response to shareholder opposition to a say-on-pay proposal should be discussed in the company’s proxy statement, rather than provided in another filing or communication.
• Pay for Performance. Glass Lewis revised its guidelines regarding the peer groups used in its pay-for-performance model to include the peers of a company’s self-disclosed peers.
• Long-Term Incentives. Glass Lewis clarified that in cases where performance-based awards are significantly rolled back or eliminated from a company’s long-term incentive plan, Glass Lewis will assess the revision’s impact on the pay program’s ability to align executive pay with performance and shareholder experience, and the program may receive an unfavorable recommendation if it fails Glass Lewis’s assessment or if the change is not offset by meaningful revisions.
• Change in Control. Glass Lewis revised its guidelines relating to change in control provisions to address companies that allow for committee discretion over the treatment of unvested awards. Companies that provide this discretion “should commit to providing clear rationale for the committee’s ultimate decision as to how such awards should be treated in the event a change in control occurs.”
• CEO Pay Ratio. While a company’s CEO pay ratio is not a determinative factor in its voting recommendations, Glass Lewis added a statement that “the underlying data may help shareholders evaluate the rationale for certain executive pay decisions such as increases in fixed pay levels.”

Reincorporation. Glass Lewis revised its guidelines to provide that it will review all proposals to reincorporate to a different state or country on a case-by-case basis. Its review will include several factors including, among others, impacts on shareholder rights, material differences in corporate statutes and case law, financial benefits, and the company’s overall governance profile. Where a controlled company is seeking to reincorporate, Glass Lewis will evaluate how the independent directors came to their recommendation, if the controlling shareholder had any ability to influence the board, and whether the proposal was put to a vote of disinterested shareholders. Glass Lewis continues to view shareholder-initiated reincorporations with skepticism and will only support shareholder-initiated reincorporation proposals in exceptional circumstances.

Glass Lewis—ESG Guidelines

AI Shareholder Proposals. Glass Lewis added a new section outlining its approach to shareholder proposals dealing with companies’ use of AI technologies. Glass Lewis will review and make recommendations on AI-related shareholder proposals on a case-by-case basis. When evaluating the proposal, Glass Lewis will 1) review the request of the proposal, and the disclosure provided by the company and its peers concerning their use of AI including with respect to the oversight of AI-related issues and 2) evaluate any lawsuits, fines, or high-profile controversies regarding the company’s use of AI and “any other indication that the company’s management of this issue presents a clear risk to shareholder value.”

ISS Guidelines

Compensation-Related Updates. On December 13, 2024, ISS published updates to its United States – Executive Compensation Policies Frequently Asked Questions. ISS made updates to the section on management say-on-pay and executive pay evaluation. Notable updates include:

• ISS added that any named executive officer disclosed in the proxy statement, whether or not included in the Executive Pay Overview section of its report, may be analyzed and included in the compensation analysis.
• The realizable pay chart will not be displayed for companies that have experienced multiple CEO changes within the three-year measurement period.
• Existing qualitative considerations for performance equity programs will be subject to greater scrutiny in the context of a quantitative pay-for-performance misalignment. ISS includes a non-exhaustive list of typical qualitative considerations including, for example, non-disclosure of forward-looking goals, poor disclosure of closing cycle-vesting results, poor disclosure of the rationale for metric changes or adjustments or program design, unusually large pay opportunities (including maximum vesting opportunities), non-rigorous goals that do not appear to strongly incentivize for outperformance, and/or overly complex performance equity structures. Multiple qualitative concerns will be more likely to result in an adverse say-on-pay recommendation.
• ISS indicated that mid-cycle changes (such as to metrics, performance targets and/or measurement periods) for in-progress incentive programs will generally be viewed negatively, and companies should disclose clear and compelling rationale for such actions and explain how they do not circumvent pay-for-performance outcomes.
• In an update made in October 2024, ISS clarified that to receive credit for a “robust” clawback policy in the “Executive Compensation Analysis” section of its company research reports for purposes of say-on-pay vote evaluations, a company’s clawback policy must exceed Dodd-Frank requirements and explicitly cover all time-vesting equity awards. This update is consistent with ISS’s existing position under its Equity Plan Scorecard, which is used to evaluate equity incentive plan proposals.

General Environmental Proposals and Community Impacts. ISS updated the title of these guidelines to “Natural Capital-Related and/or Community Impact Assessment Proposals” and updated the factors that it considers when reviewing these proposals to better reflect the variety of proposals that companies receive including, for example, shareholder proposals focused on biodiversity and other connected environmental topics such as deforestation and water pollution.

Short-Term Poison Pills. ISS updated its guidelines to clarify some of the “other factors” that are considered in its case-by-case evaluation of whether the board’s action in adopting a short-term pill was reasonable, or whether the adoption of the pill is a governance failure warranting a recommendation to vote against directors.

SPAC Proposals for Extensions. ISS codified its current approach to recommend support for SPAC extension requests of up to one year from the original termination date, inclusive of any built-in extension options, and accounting for prior extension requests.

Companies should consider reviewing their existing disclosures against these updated voting guidelines with a view to determining whether any updates or clarifications may be useful to address proxy advisory firm or shareholder concerns.

If you have any questions about proxy advisory firm guidelines, please contact any member of the firm’s public company representation or employee benefits and compensation practices.

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[1] As of the date of this alert, the full copy of ISS’s United States Proxy Voting Guidelines: Benchmark Policy Recommendations had not been published.