ISS 2026 Compensation Benchmark Policy Changes: What Boards Need to Know
On November 25, 2025, Institutional Shareholder Services (ISS) released its final 2026 U.S. benchmark voting policy updates (Americas region), effective for shareholder meetings on or after February 1, 2026. The revisions introduce several changes to how ISS will evaluate executive and director compensation programs that boards and management teams should be aware of. Key items include changing views on time-based equity awards, pay for performance evaluation periods, Compensation Committee responsiveness to low “Say on Pay” voting, excessive board of director pay and new factors being added to the Equity Plan Scorecard Model (EPSC).
Taken together, these changes reflect some of the most material changes to compensation-focused policies in some time.
We break down the key updates and what they mean for companies preparing for the 2026 proxy season.
Extended Pay-for-Performance Time Horizon
- RDA assessment period expanded to 5 years
- MOM adding 3-year assessment
ISS is expanding timeframes used in its quantitative pay for performance assessment. The period for Relative Degree of Alignment (RDA) testing is increasing from 3 to 5 years, while the Multiple of Median (MOM) screen will have an additional 3-year measurement to go along with the 1-year assessment.
Zayla notes ISS stated these changes are intended to “get above the noise” of short-term volatility (market and compensation) and better align with institutional investor views on how pay and long-term performance should be evaluated. Some of the specifics on how exactly these changes will be implemented are expected to be disclosed in mid-December in updated policy FAQs.
Greater Flexibility Towards Time-Based Equity with Extended Vesting
- Performance-vesting equity awards no longer need to be at least 50% of mix
- Support for extended vesting or retention requirements on time-vesting awards
- Performance-vesting awards will still be viewed positively
This update is intended to reflect the shifting landscape of investor views on the effectiveness of performance-vesting long-term incentives. Under its qualitative review process, ISS will now consider more favorably any time-vesting long-term incentive awards that have longer vesting periods and/or post-vesting holding requirements.
Zayla notes the change represents feedback from recent ISS policy surveys (going beyond the most recent one), compensation roundtables and publicized frameworks from key institutional investors. Increasingly, such groups have expressed concern around the complexity of performance-vesting award designs in the U.S. and their overall effectiveness in motivating performance and aligning pay and performance outcomes. As a retort, investors are increasingly supportive of a more flexible and qualitative approach to evaluating long-term incentive decision-making.
Despite the foregoing, it’s important to note that performance-vesting awards will continue to be viewed favorably by ISS in its qualitative reviews.
Things they will look for:
- well-designed awards,
- clear disclosure of award structures,
- realized, realizable and granted pay outcomes
All will impact conclusions.
Zayla notes these changes allow boards more flexibility vis-à-vis standard ISS policy, which may be timely given growing discussion more recently on the difficulties boards are having in setting performance metrics for long-term periods.
Heightened Scrutiny of Non-Employee Director (NED) Compensation
- Tightening problematic pay policy to allow adverse recommendations in first year of disclosed problematic pay or if patterns exist across nonconsecutive years
ISS is revising its existing policy related to problematic pay for board members. This change was made to limit restrictions on noting examples of problematic pay and making related adverse recommendations that previously required a pattern of such evidence over two or more years. Additionally, ISS clarified in the policy change that “problematic” may include performance awards, retirement benefits or other problematic perquisites.
While boards should be aware of this change, the large majority of boards across the U.S. market do not push the envelope on their pay and therefore should not be concerned about these changes. If your board is concerned about potential implications of this change, we should connect!
Compensation Committee Responsiveness
ISS has altered its expectations around how a Compensation Committee can demonstrate appropriate “responsiveness” to low say-on-pay support, which is defined as “for” votes accounting for less than 70% of total voting.
This change stems from challenges companies may experience in engagement with shareholders due to recent changes in SEC guidance related to passive versus active filing status for investors. Of note here is the alignment ISS saw from both investor and non-investor survey responses on this issue – all agreed that the absence of disclosed shareholder feedback should not be viewed negatively if the public issuer disclosed it made substantial efforts.
In cases where say-on-pay support falls below ISS’s 70% threshold, boards will have greater flexibility to demonstrate responsiveness.
Key clarifications:
- ISS acknowledges that SEC rules (e.g., differences between 13D vs. 13G filers) may restrict certain shareholder communications.
- Boards may provide a detailed disclosure of engagement efforts, actions taken, and the rationale for changes, even when specific investor feedback is limited or unavailable.
- Material changes must be fully described, not merely referenced.
While clear, substantive disclosure will continue to be needed, the change eliminates the potential for boards to find themselves in an unfair position where restrictions on engagement might bring undue criticisms.
Equity Plan Scorecard (EPSC) Changes
The EPSC is getting some modifications:
- New scoring factor that assesses whether or not a company has a cash-denominated award limit for non-employee director compensation. Note this will be under the Plan Features pillar, and in 2026 will only apply to S&P 500 and Russell 3000 models.
- A new negative overriding factor where an applicable proposal may receive an “against” recommendation if it is found to lack sufficient positive features under the Plan Features pillar. Note the “against” recommendation would still be applied even if the proposal has an overall passing score under the EPSC. This only applies to S&P 500, Russell 3000 and non-Russell 3000 EPSC models in 2026.
This change means that some plans previously viewed as acceptable may now receive negative recommendations unless thoughtfully structured, as individual award limits for Boards were previously just noted as informational data and not a scored factor under the EPSC.
If you are a company considering a plan proposal for 2026, Zayla recommends you re-evaluate scoring under this revised model as ISS recommendations have been known to impact vote results by more than 20%.
Implications for 2026 Proxy Season
ISS’s 2026 policy updates signal a shift toward longer-term evaluation, clearer disclosure expectations, and heightened scrutiny of director pay and plan design. Until more is known on the specifics of how some of these policy changes will be implemented, Zayla notes there are limited implications to consider at this time. Compensation decisions for FY2025, which will be the focus of evaluations in the proxy season, are largely set in stone. Obviously, so are pay decisions over the last 5 years.
As a result, we see early impacts as focused on go-forward matters like equity plan proposals. Boards and management teams should ensure they are clued in to the changes in policy that impact evaluations of those proposals, and make changes where they deem it to be appropriate.
Zayla can assist in any capacity.