Glass Lewis Publishes 2025 Policy Updates

In cases where GL finds deficiencies in a company’s compensation program’s design, implementation or management, GL will recommend that shareholders vote against the say-on-pay proposal. Generally, such instances include (i) evidence of a pattern of poor pay-for-performance practices, (ii) unclear or questionable disclosure regarding the overall compensation structure, (iii) questionable adjustments to certain aspects of the overall compensation structure, and (iv) other egregious compensation practices.

GL clarified that its analysis of executive compensation programs is conducted on a “case-by-case basis,” considering factors like quantitative analyses, structural features, best practice policies, disclosure quality, and trajectory-related elements. No single factor would typically lead to an unfavorable recommendation without reviewing the company's rationale and its effects on pay program alignment with performance and shareholder experience.

GL views various factors negatively, and, when weighed together, may cause GL to recommend voting against a say-on-pay proposal. Negative factors include (i) inappropriate or outsized self-selected peer groups and/or other benchmarking issues, (ii) egregious or excessive bonuses, equity awards, perquisites or severance payments, (iii) insufficient response to low shareholder support, (iv) problematic contractual payments, (v) insufficiently challenging performance targets and/or high potential payout opportunities, (vi) performance targets lowered without justification, (vii) discretionary bonuses paid when short- or long-term incentive plan targets were not met, (viii) high executive pay relative to peers that is not justified by outstanding company performance, and (ix) the terms of the long-term incentive plans are inappropriate.

GL added “Adjustments to performance results that lead to problematic pay outcomes” to the list of negative factors.

GL evaluates disclosure on a “Good, Fair, Poor” rating scale: A “Good” rating represents a thorough discussion of all elements of compensation. A “Fair” rating represents an adequate discussion of all or most elements of compensation. A “Poor” rating represents an incomplete or absent discussion of compensation.

GL clarified that the evaluation for the “Good, Fair, Poor” rating will consider not only the thoroughness of the discussion of each compensation element but also the rationale behind each element.

In addition, GL added that while regulatory disclosure rules may allow for the omission of some executive compensation information (e.g., smaller reporting company standards), GL expects companies to provide sufficient information in the proxy statement to allow shareholders to make informed voting decisions.

GL expects the board to engage with shareholders and demonstrate some level of engagement and responsiveness when 20% or more of shareholders oppose the prior year’s say-on-pay proposal.

GL clarified that the compensation committee's response to low Say-on-Pay support—defined as less than 80%—should be discussed in the proxy statement (as opposed to other SEC filings or external communications).

There are certain design elements GL finds favorable in a well-designed long-term incentive program, including (i) no re-testing or lowering of performance conditions, (ii) performance metrics that cannot be easily manipulated by management, (iii) two or more performance metrics, (iv) at least one relative performance metric, (v) performance periods of at least three years, (vi) stretching metrics that incentivize executives to strive for outstanding performance while not encouraging excessive risk-taking, (vii) reasonable individual award limits, and (viii) equity granting practices that are clearly disclosed.

GL added “Additional post-vesting holding periods to encourage long-term executive share ownership” to the list of favorable design elements.

GL believes at least 50% of long-term incentives grants should be in the form of performance-based awards. Significant roll-back or elimination of performance-based awards will generally be viewed negatively.

GL clarified that if the percentage of performance-based awards is reduced or eliminated, then an assessment of the impact of the change on the alignment of executive pay and shareholder experience will be performed. Companies that fail the assessment may receive an unfavorable vote recommendation if the changes are not balanced by other meaningful revisions (e.g., quantum of pay or vesting periods), especially if no clear rationale is provided.

GL believes shareholders should generally be wary of awards granted outside of the standard incentive schemes, as such awards have the potential to undermine the integrity of a company’s regular incentive plans or the link between pay and performance, or both. GL generally believes that if the existing incentive programs fail to provide adequate incentives to executives, companies should redesign their compensation programs rather than make additional grants. In addition, GL believes companies making supplemental or one-time awards should describe if and how the regular compensation arrangements will be affected by these additional grants.

GL clarified that grants of supplemental awards are reviewed on a “case-by-case, company-by-company basis” to ensure adequate consideration of unique circumstances.

GL considers double-trigger change in control arrangements, which require both a change in control and termination or constructive termination, to be best practice. In addition, GL believes that excessively broad definitions of change in control are potentially problematic as they may lead to situations where executives receive additional compensation where no meaningful change in status or duties has occurred.

GL added that companies allowing committee discretion over the treatment of unvested awards should commit to providing a clear rationale for the committee's final decision on how these awards will be handled in the event of a change in control.

GL will display the CEO pay ratio as a data point in its Proxy Papers, but it will not be a determinative factor in GL’s voting recommendations.

GL added that while the CEO pay ratio is not a factor in their voting recommendation, the underlying data may assist shareholders in evaluating the rationale for specific executive pay decisions, such as increases in fixed pay levels.