ISS Releases Policy Updates For 2026 Annual Shareholder Meetings

ISS has released its benchmark policy changes for 2026. The changes largely adopt ISS's previously proposed policy changes. The new policies will generally apply to shareholder meetings held on or after February 1, 2026. Notably, no changes to director overboarding policies are being implemented for 2026.

Below is a summary of the significant changes applicable to U.S. public companies:

Significant Policy Changes for 2026

1. Problematic Capital Structures

• Existing Policy: ISS recommends voting against directors at companies with a common stock structure featuring unequal voting rights, subject to certain exceptions (e.g., existence of certain sunset provisions, limited partnerships, de minimis super-voting shares).
• Policy Changes: ISS will recommend voting against directors at companies with any multi-class capital structure with unequal voting rights, regardless of whether shares with superior voting rights are classified as common or preferred. This change is designed to eliminate prior inconsistencies in treatment between common and preferred shares. There will also be new exceptions to the policy for convertible preferred shares that vote on an "as converted-basis" and enhanced voting rights that are limited in duration and applicability. Further, preferred shares with unequal voting rights with respect to items that only affect the holders of preferred shares as a class will not be considered problematic.

2. Problematic Compensation Practices – High Non-Employee Director Pay

• Existing Policy: ISS recommends voting against members of a board committee responsible for non-employee director compensation if there is "a pattern" of excessive compensation for non-employee directors without a compelling rationale. A pattern is considered two or more years of excessive compensation.
• Policy Changes: ISS is expanding its vote against policy to situations where the two or more years are consecutive or non-consecutive and where compensation to non-employee directors is otherwise problematic (such as performance awards, retirement benefits or problematic perquisites). Further, an adverse voting recommendation may be warranted in the first year for particularly egregious director pay issues, such as the ones referenced in the previous sentence.

3. Executive Compensation – Company Responsiveness

• Existing Policy: ISS recommends voting on a case-by-case basis, depending on certain factors, on compensation committee members and the say-on-pay proposal if the company's previous say-on-pay proposal received the support of less than 70 percent of votes cast.
• Policy Changes: ISS is introducing more discretion into its analysis where a company discloses meaningful efforts to engage with shareholders about compensation but the company was ultimately unable to receive specific feedback. ISS notes that in light of recent SEC guidance on Schedule 13G vs. 13D filing status for institutional investors, which may create difficulties for companies to obtain feedback from shareholders, this policy change allows more flexibility for companies to demonstrate responsiveness to low say-on-pay support.

4. Executive Compensation – Long-Term Alignment in Pay-for-Performance Evaluation

• Existing Policy: ISS conducts a pay-for-performance analysis to identify strong or satisfactory alignment between pay and performance over a three-year period. Short-term pay quantum is also considered.
• Policy Changes: ISS will analyze pay-for-performance alignment over a five-year period (instead of three years), to emphasize sustained value creation and smooth out short-term fluctuations. Short-term pay quantum will still be considered. The update is intended to better align with how investors assess a company's long-term performance when evaluating compensation relative to peers.

5. Executive Compensation – Time-Based Equity Awards with Long-Term Time Horizon

• Existing Policy: ISS conducts a pay-for-performance analysis that may include qualitative factors for an evaluation of how various pay elements may work to encourage or to undermine long-term value creation and alignment with shareholder interests.
• Policy Changes: ISS will consider in its qualitative analysis vesting or retention requirements for equity awards that demonstrate a long-term focus. This is meant to add more flexibility to the pay-for-performance qualitative review, whereby time-based equity awards with extended time horizons will be viewed positively.

6. Executive Compensation – Enhancements to Equity Plan Scorecard

• Existing Policy: ISS recommends voting on a case-by-case basis on certain equity-based compensation plans using an equity plan scorecard that considers plan cost, plan features, and grant practices. ISS recommends voting against the plan proposal if the combination of factors indicates that the plan is not, overall, in shareholders' interests, or if certain egregious factors apply (such as awards that vest in connection with a liberal change-of-control definition, the plan is a vehicle for problematic pay practices, the plan is excessively dilutive to shareholders or the plan contains an evergreen (automatic share replenishment) feature).
• Policy Changes: ISS is introducing a new scored factor that will assess whether a proposed equity plan includes cash-denominated award limits for non-employee directors. ISS notes this is considered a best practice. Additionally, ISS identified numerous instances in which an overall passing score was reached despite receiving a very poor or zero plan features score. To address this, ISS is introducing a new negative overriding factor where an equity plan proposal will receive an "Against" recommendation if it is found to be lacking sufficient positive features, despite an overall passing score.

7. Shareholder Proposals – Environmental & Social ("E&S") Topics

• Existing Policy: ISS generally recommends support for E&S related shareholder proposals (e.g., diversity, political contributions, human rights, and climate change/greenhouse gas emissions) unless specific conditions warrant otherwise.
• Policy Changes: ISS will take a fully case-by-case approach to evaluating E&S related shareholder proposals, including proposals related to climate change, greenhouse gas emissions, diversity, political contributions, and human rights. The changes reflect feedback from investors, declining support for such proposals, changes in regulations, and the progress of many relevant company practices in recent years. ISS's global approach to E&S shareholder proposals will also consider in the analysis whether a proposal addresses substantive matters that may impact shareholders' interests, including how a proposal may impact shareholders' rights.

8.Director Independence – Highly Paid Non-Executive Directors

• Existing Policy: Unusually highly paid non-executive directors may be classified as executive directors, which impacts the assessment of director independence.
• Policy Changes: ISS will generally classify unusually highly paid non-executive directors as non-independent non-executive directors (instead of executive directors) unless there is clear evidence of executive duties, in which case they will still be classified as executive directors. This change aims to enhance clarity and transparency in director independence standards by separating executive status (based on duties) from independence (based on relationships and incentives).

Implications for Public Companies

The ISS policy updates for 2026 reflect evolving investor expectations and regulatory developments, with a continued focus on board accountability and compensation practices. Companies should:

• Review capital structures for compliance with new voting rights standards;
• Assess director and executive compensation practices; and
• Consider responsiveness to shareholder concerns on say-on-pay votes.

Management should consider how these updates align with existing company policies and practices and discuss concerns with advisors in advance of the next annual meeting.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.