Executive Compensation - Anything Goes?

The Temptation to Relax

Boards may be tempted to cease fretting over adverse reactions to poor pay practices. After all:

Say-on-pay failures are dropping like flies, despite record CEO pay:

• In the Russell 3000, average support has climbed to 92.6% and the failure rate has fallen to 0.4%; ISS reports that only nine say-on-pay proposals in the Russell 3000 failed through June 8, 2026.

  
  

• Median support across the Russell 3000 and the S&P 500 stands at a five-year high.

The SEC is proposing relaxed disclosure requirements:

• A pending proposal would end mandatory CD&A and say-on-pay votes - along with the pay versus performance and pay ratio disclosure - for roughly 80% of reporting companies.

  
  

• A separate proposal would let eligible companies report financials semiannually rather than quarterly.

  
  

• Easing public company regulations is a very public SEC priority, and executive compensation remains on the SEC’s 2026 rulemaking agenda.

Proxy advisors seem to be in retreat:

• The DOJ is planning to re-open antitrust concerns over ISS's consulting services.

  
  

• Proxy advisor impact on voting outcomes has waned significantly since 2021.

  
  

• Glass Lewis will move away from a one-stop-shop voting policy in 2027, toward a more bespoke model.

  
  

• JP Morgan publicly replaced ISS with its own proprietary AI-based proxy voting system, marking a broader trend of large institutional investors reducing their reliance on proxy advisors.

  
  

Shareholders Still Have Their Own Rules

Shareholders, particularly activist, still punish pay disconnects, and will take directors to task for perceived breaches of fiduciary obligation, including by voting against compensation committee members, their chair, or in favor of dissident independents:

• A quarter of Russell 3000 companies that failed say-on-pay in 2024 drew activist attention the following year, most often paired with a demand to remove the CEO or a director.

  
  

• ISS’s 2026 policy survey asked how ISS should react to poor pay decisions in the absence of a say-on-pay vote – and we suspect investors will favor a “no” recommendation against the compensation committee chair or the entire committee.

  
  

• While JP Morgan has moved away from ISS toward a proprietary AI-based proxy voting system, mid-size and smaller institutional investors continue to rely on proxy advisors to support voting decisions.

  
  

What Boards Should Do

But, even in an apparent “anything goes” environment, boards must engage shareholders to effectively read the room when exercising discretion, document their deliberations through robust meeting minutes, and avoid becoming tone-deaf to shareholder interests when reviewing management’s proposals. 

Otherwise they may face negative shareholder votes - on pay, or on themselves.

Practically, that means:

• Disclosure relief does not mean disclosure retreat. Even if your company becomes eligible to drop its CD&A or say-on-pay vote, your stockholders will likely oppose (strongly) a material pullback on disclosure and shareholder rights. Continuing your current disclosure and voting pattern, therefore, is better than managing “no” votes against directors. 

  
  

• Engage your voting base in the off-season and review feedback annually. If proxy advisor policies control less of your voting base, securing a positive vote outcome requires listening to a broader swath of investors. The compensation committee annual calendar should reflect not just proxy advisor feedback, but a specific presentation from management’s IR team, and a thoughtful summary of board-level outreach, before major decisions are made.

  
  

• Conduct an annual off-season "compensation summit" to align the board and management on the key priorities for the next cycle. As we discussed previously, a mid-year working group summit allows key stakeholders to test ideas and collaborate so that management's proposals are perfected before presentation to the full compensation committee.

  
  

• Document discretion contemporaneously. Proactively review draft disclosure in advance of major decisions, and ensure your meeting materials and minutes reflect all the key considerations and decision rationale. This ensures committee decisions are camera-ready for proxy season and shareholder engagement.