Institutional Shareholder Services (ISS) and Glass Lewis, two leading proxy advisory firms, recently announced updates to their U.S. proxy voting policies in advance of the 2025 proxy and annual meeting season. Public companies need to consider how these updates could impact voting recommendations and any governance changes that could be implemented to improve the likelihood of favorable recommendations.

Background on Proxy Advisory Firms

ISS and Glass Lewis have risen to prominence for making proxy voting recommendations to their investor clients ahead of shareholder meetings for public companies. 

ISS and Glass Lewis publish their respective proxy voting guidelines and policies that describe the factors that it will take into consideration in making voting recommendations. While these policies remain largely consistent year over year, the annual updates often address new and emerging issues, such as artificial intelligence, or revise or clarify existing stances on evolving matters of corporate governance, such as executive compensation, director independence, and environmental, social, and governance (ESG) policies and disclosures. These changes can be based on a number of factors, such as changing shareholder attitudes, new legislation or exchange rules, or general industry trends.

These proxy voting guidelines can be used by institutional investors as either determinative or informative of their voting decisions, and the recommendations by ISS and Glass Lewis can significantly sway the outcome of shareholder voting proposals.

2025 ISS Proxy Voting Guideline Changes

Executive Compensation

In addition to revisions to its proxy voting guidelines, ISS also updated its FAQs on executive compensation policies:

• Computation of Realizable Pay - The realizable pay chart will not be displayed for companies that have experienced multiple (two or more) CEO changes within the three-year measurement period.
• Pay-for-Performance Qualitative Review - ISS will place greater focus on performance‑vesting equity disclosures and plan designs, especially for companies with a quantitative pay-for-performance misalignment. Existing qualitative considerations around performance equity programs will be subject to greater scrutiny in the context of a quantitative pay‑for‑performance misalignment. ISS provided a non-exhaustive list of typical considerations for such analysis, including:
  • Non-disclosure of forward-looking goals (note: retrospective disclosure of goals at the end of the performance period will carry less mitigating weight than it has in prior years);
  • Poor disclosure of closing-cycle vesting results;
  • Poor disclosure of the rationale for metric changes, metric adjustments or program design;
  • Unusually large pay opportunities, including maximum vesting opportunities;
  • Non-rigorous goals that do not appear to strongly incentivize for outperformance; and/or
  • Overly complex performance equity structures.
• Evaluation of Incentive Program Metrics - ISS reaffirmed its stance that it does not favor total shareholder return (TSR) or any specific metric in executive incentive plans, holding that the board and its compensation committee are best suited to choose metrics that lead to long-term shareholder value. However, ISS acknowledged that shareholders prefer an emphasis on objective metrics that lead to increased transparency in compensation decisions. In evaluating the metrics of an incentive program, ISS may consider several factors, including:
  • Whether the program emphasizes objective metrics linked to quantifiable goals, as opposed to highly subjective or discretionary metrics;
  • The rationale for selecting metrics, including the linkage to company strategy and shareholder value;
  • The rationale for atypical metrics or significant metric changes from the prior year; and/or
  • The clarity of disclosure around adjustments for non-GAAP metrics, including the impact on payouts.
• Changes to In-Progress Incentive Programs - ISS reiterated its position against midstream changes to ongoing incentive programs, such as metrics, performance targets, and/or measurement periods). Similar to other kinds of unusual pay program interventions, ISS states that companies should disclose a compelling rationale for such actions and how they do not circumvent pay-for-performance outcomes.
• Robust Clawback Policies - This year, ISS added a new FAQ concerning the requirements for a clawback policy to be considered “robust” under the “Executive Compensation Analysis” section of the ISS research report. In order to qualify, a clawback policy must:
  • Extend beyond minimum Dodd-Frank requirements; and
  • Explicitly cover all time-vesting equity awards.

Poison Pills

ISS made significant revisions to its voting policies concerning shareholder rights plans, more commonly referred to as “poison pills,” which are used by boards of directors to prevent hostile takeovers. Currently, when considering whether or not to vote for director nominees who have adopted a short-term poison pill (one year or less) without shareholder approval, ISS evaluates director nominees on a case-by-case basis. This year, ISS revised its guidelines to increase transparency surrounding the factors considered in this evaluation.

The revised list of factors now includes (changes as marked):

• The trigger threshold and other terms of the pill;
• The disclosed rationale for the adoption;
• The context in which the pill was adopted (e.g., factors such as the company’s size and stage of development, sudden changes in its market capitalization, and extraordinary industry-wide or macroeconomic events);
• A commitment to put any renewal to a shareholder vote;
• The company’s overall track record on corporate governance and responsiveness to shareholders; and
• Other factors as relevant.

Natural Capital

Next, ISS renamed references to “General Environmental Proposals” with “Natural Capital‑Related and/or Community Impact Assessment Proposals.” ISS also revised the list of factors considered when voting requests for reports on policies and/or the potential (community) social and/or environmental impact of company operations. 

The revised list of factors now includes (changes as marked):

• Alignment of current disclosure of applicable company policies, metrics, risk assessment report(s) and risk management procedures with any relevant, broadly accepted reported frameworks;
• The impact of regulatory non-compliance, litigation, remediation, or reputational loss that may be associated with failure to manage the company’s operations in question, including the management of relevant community and stakeholder relations;
• The nature, purpose, and scope of the company’s operations in the specific region(s);
• The degree to which company policies and procedures are consistent with industry norms; and
• The scope of the resolution.

SPAC Extensions

ISS also revised its policies with respect to SPAC termination dates and extension requests. Now, ISS will generally recommend that shareholders vote in favor of requests to extend the termination date of a SPAC by up to one year from the SPAC’s original termination date, inclusive of any built-in extension options, and accounting for prior extension requests.

ISS may also consider the following factors:

• Any added incentives;
• Business combination status;
• Other amendment terms; and
• If applicable, use of money in the trust fund to pay excise taxes on redeemed shares.

2025 Glass Lewis Proxy Voting Guideline Changes

Approach to Executive Pay Program

Glass Lewis provided clarification on its pay-for-performance policy to emphasize Glass Lewis’ holistic approach to analyzing executive compensation programs. Glass Lewis’ analysis reviews pay programs on a case-by-case basis, and there are few program features that, standing alone, will lead to an unfavorable recommendation from Glass Lewis on a say-on-pay proposal.

Glass Lewis does not utilize a pre-determined scorecard approach when considering individual features such as the allocation of the long-term incentive between performance-based awards and time-based awards. Unfavorable factors in executive compensation programs are reviewed in the context of rationale, overall structure, overall disclosure quality, the program’s ability to align executive pay with performance and the shareholder experience, and the trajectory of the pay program resulting from changes introduced by the board’s compensation committee, all as reflected in the compensation disclosures in the company’s proxy statement.

Additionally, while regulatory disclosure rules may allow for the omission of key executive compensation information, such as for smaller reporting companies, Glass Lewis believes that companies should use proxy statements to provide sufficient information to enable shareholders to vote in an informed manner.

Glass Lewis also revised how it identifies peer groups for its pay-for-performance model, including with reference to the peers of a company’s self-disclosed peers.

Board Oversight of Artificial Intelligence

Glass Lewis has adopted new guidelines dedicated to board oversight of AI, similar to the oversight of cybersecurity that was added in 2023. Glass Lewis believes that boards should take steps to mitigate exposure to material risks that could arise from their use or development of AI. 

In the absence of material incidents related to a company’s use or management of AI-related issues, Glass Lewis’ policy will generally not make voting recommendations on the basis of AI‑related issues. However, when there is evidence that there is insufficient oversight and/or management of AI technologies that has resulted in material harm to shareholders, Glass Lewis will review a company’s overall governance practices and identify which directors or board-level committees have been charged with oversight of AI-related risks. Glass Lewis will also closely evaluate the board’s management of this issue, as well as any associated disclosures, and Glass Lewis may recommend against directors it deems appropriate should it find the board’s oversight, response, or disclosure concerning AI-related issues to be insufficient. Glass Lewis recommends that all companies that develop or use AI in their operations disclose the board’s role in AI oversight and how they are ensuring their directors are fully educated on this topic.

Change-in-Control Procedures

Glass Lewis also has updated the policies surrounding the change-of-control provision to clarify that companies that allow for committee discretion over the treatment of unvested awards should commit to providing clear rationale for how such awards are treated in the event that a change in control occurs. This change underscores the importance of clear disclosure surrounding equity awards.

Board Responsiveness to Shareholder Proposals

Glass Lewis revised its policy for shareholder proposals to clarify that when shareholder proposals receive “significant” shareholder support (generally more than 30%, but less than a majority of votes cast), boards should engage with shareholders on the issue and provide future disclosure addressing shareholder concerns and outreach initiatives. 

Reincorporation

Glass Lewis also revised its policy on reincorporation to reflect that Glass Lewis reviews all proposals to reincorporate to a different state or country on a case-by-case basis. Glass Lewis considers a number of factors, including the changes in corporate governance provisions, especially those relating to shareholder rights, material differences in corporate statuses and legal precedents, and relevant financial benefits, among other factors, resulting from the change in domicile.

Key Takeaways

You can find copies of the 2025 polices of ISS and Glass Lewis on their respective websites, as well as summaries of their 2025 policy updates. These policy updates will be important as public companies prepare for their 2025 proxy statements and annual shareholders’ meetings. Companies should review these voting guidelines to proactively make disclosures necessary to secure favorable voting recommendations from ISS and Glass Lewis. Companies may also want to consider changes in governance and compensation practices to decrease the likelihood of an adverse voting recommendation from ISS or Glass Lewis, although any such change should also be weighed against the overall governance needs and strategy of the company.

In addition to ISS and Glass Lewis and other third-party proxy advisory firms, companies should review the voting policies of any large institutional investors who have significant shareholdings in the company. These institutional investors often have their own voting policies that can change over time, like ISS and Glass Lewis.