Rethinking Long-Term Incentive Design: Are Longer-Horizon RSUs Gaining Ground?

Institutional investor and proxy advisor perspectives on the appropriate mix of time- and performance-based equity have continued to evolve, including ISS’s November 2025 policy change providing greater flexibility for the use of time-based equity with extended vesting and/or holding requirements. Longer-horizon time-based equity may offer greater simplicity and predictability, reinforce sustained stock ownership and retention, and reduce reliance on multi-year performance goals that can be challenging to establish in certain business environments. These considerations may be particularly relevant for companies with long investment horizons or exposure to factors such as regulatory change, cyclicality, and long-term forecasting challenges. Consistent with this trend, FW Cook identified several companies across industries that disclosed transitions to longer-horizon RSUs in their 2026 proxy statements.

For much of the last decade, the prevailing U.S. executive long-term incentive model has been straightforward: a combination of time-based restricted stock units (RSUs) with performance stock units (PSUs), placing at least half of the equity value in performance-based awards. That model remains common, but it is no longer the only design that compensation committees can consider in long-term incentive design.

A growing group of institutional investors has questioned whether increasingly complex PSU programs produce better alignment. At the same time, ISS has revised its framework to provide greater flexibility for companies to use longer-horizon time-based equity. This has resulted in a broader design conversation – not an abandonment of pay-for-performance, but a reassessment of how much complexity and formulaic performance conditioning is necessary to create long-term alignment.

Examples of Companies Transitioning to Longer-Horizon RSUs

While more complete proxy disclosure regarding these programs is expected in 2027, several companies have already forward-disclosed transitions to longer-horizon RSUs. Based on disclosures in 2026 proxy statements, the table below summarizes LTI program modifications adopted by six companies across a range of industries. Notably, many of these companies operate in cyclical, seasonal or otherwise volatile business environments where establishing reliable long-term performance goals can be challenging.

Sample Companies by Industry

Why the Conversation Around PSUs Is Changing

Performance awards can be effective when the underlying metrics are measurable, tied to long-term value creation, and provide management with clear line of sight to performance. However, investors have also raised concerns that PSU programs can become difficult to understand, sensitive to multi-year goal-setting assumptions, and less retentive when performance expectations deteriorate. In some cases, companies respond to weak or forfeited performance awards with separate retention grants, adding another layer of complexity.

Longer-horizon RSUs address some of these issues. They are transparent, keep executives continuously exposed to stock-price performance, and preserve retention value through both strong and weak operating periods. A longer vesting or holding period can also shift attention away from a single three-year measurement cycle and toward sustained ownership over a broader horizon.

The Design Question Is Not Simply “PSUs or RSUs”

Under ISS’s new policy, a company can use time-based awards for 50% or more of the LTI mix – even potentially 100% – without favoring a majority performance-based mix, provided the awards are subject to a combined vesting and holding period of at least five years. In practice, that “five-year” concept can be achieved through different structures, such as five-year ratable vesting or four-year ratable vesting followed by a one-year post-vesting holding requirement.

This does not mean that a 100% RSU program is now the preferred answer. It means that compensation committees have more room to evaluate whether longer-horizon time-based equity may better fit the company’s strategy, talent needs, and performance-measurement environment.

Committees considering a change do not need to choose between maintaining the current program and moving immediately to 100% time-based equity. Intermediate designs can preserve performance leverage while introducing longer-horizon ownership. For example, a company could reduce, but not eliminate, its PSU weighting while introducing a portion of extended-vesting RSUs.

Transition Mechanics Matter

A shift from PSUs to longer-vesting RSUs can also create temporary vesting gaps. A typical three-year cliff-vested PSU award concentrates value in year three, while a four- or five-year ratable RSU schedule spreads vesting more evenly over time. When one structure replaces the other, executives may experience a temporary decline in scheduled vesting before the new program reaches a steady state.

Committees should model the transition for each individual before adopting a new design. If a bridge award or temporary increase is considered, the objective should be to address a clearly identified transition effect. The size, vesting schedule, and disclosure of any transitional award should therefore be evaluated together with the permanent design.

What Compensation Committees Should Ask Now

The evolving policy environment creates an opportunity to reassess LTI design. Rather than starting with a target percentage of PSUs, committees can ask whether the current structure still aligns with the business strategy and supports the needed behaviors and time horizon.

Key questions include whether multi-year performance goals remain sufficiently reliable to measure and differentiate performance; whether PSU outcomes have reinforced or weakened retention over recent cycles; whether the company’s stock price already provides a meaningful long-term performance signal; and whether a longer vesting or holding period would create stronger alignment without adding unnecessary complexity.

The right answer will continue to vary by company. But the range of credible answers is wider than it was even a few years ago.

Source: FW Cook analysis of 2026 proxy disclosures.

Stephan Bosshard
Principal

Stephan Bosshard has 13 years of consulting experience. He works with clients across a wide range of industries, with special focus on financial services. Stephan plans and manages a broad range of executive compensation and board advisory projects and his clients range from large publicly traded organizations to privately held companies including private equity portfolio companies. He has authored and co-authored publications on topics such as emerging trends and best practices in the banking industry, long-term incentive grant practices, and change-in-control benefits.

Desmond Pang
Consultant

Desmond Pang provides consulting services in various areas of compensation matters, specializing in director compensation benchmarking, executive compensation trends, peer group development, and incentive plan design. His experience spans a wide range of industries and company sizes, including large publicly traded organization and smaller publicly trade or privately held companies.

Michael Marino
Managing Director & Head of New York Office

Mike works with a broad range of clients spanning most industries and across a wide spectrum of market cap and revenue, with considerable experience advising large, complex organizations. He provides advise on all aspects of executive compensation, including transformational business transactions and CEO employment negotiations. In addition, Mike works closely with private equity firms, their portfolio companies, and family-owned businesses.