As we approach the 2026 proxy season, Institutional Shareholder Services (ISS) has announced a variety of compensation-related updates to its 2026 benchmark proxy voting policies. Among the most notable changes are revisions to the Equity Plan Scorecard (EPSC) used by ISS to evaluate issuer proposals for shareholder approval of equity incentive plans.
Under the policy updates, the EPSC will add a new scoring factor addressing individual award limits for non-employee directors and will penalize equity plans that lack a sufficient number of positive plan features. The policy changes are effective for shareholder meetings held on or after February 1, 2026.
What Is the Equity Plan Scorecard?
The EPSC is ISS’s framework for assessing issuer proposals related to employee equity incentive plans for purposes of making its voting recommendation to institutional investors. Under the EPSC, ISS assesses the shareholder-friendliness of the issuer’s equity program by weighing a combination of factors, primarily using the following three-pillar approach:
- Plan Cost (i.e., the projected dollar cost of the plan or “shareholder value transfer” relative to certain market and industry peers);
- Plan Features (i.e., the mechanics and restrictions of the plan); and
- Grant Practices (i.e., how equity is actually used, focusing on matters such as the plan’s average annual burn rate relative to market and industry peers).
Positive factors can offset negatives, and vice versa, with the overall score determining ISS’s voting recommendation. However, certain “egregious” features may result in an “against” recommendation (or “negative override”), regardless of the scoring on the EPSC factors.
Key 2026 Updates
1. New Scored Factor: Cash-Denominated Award Limits for Non-Employee Directors
For 2026, the EPSC will now award points under its Plan Features pillar based on whether a plan in which non-employee directors participate includes individual cash-denominated award limits for non-employee directors. This new Plan Features factor will initially apply only to S&P 500 and Russell 3000 EPSC models.
In practice, developments in Delaware case law over the past several years, as well as general governance best practices, have led to a widespread inclusion of maximum award limits for non-employee directors within shareholder-approved equity plans. As a result, the newly introduced EPSC factor may, in many cases, not present significant difficulties for companies taking their equity plans for shareholder approval. However, one question not addressed by the ISS policy update is whether articulating the director award limit as an overall compensation limit – a common practice – would preclude the company from receiving the points allocated to this Plan Feature.
2. Negative Overriding Factor: Insufficient Positive Plan Features
A more significant change is the introduction of a new negative overriding factor. If a plan proposal receives less than a certain threshold score on the Plan Features pillar, ISS will recommend voting “Against” the plan, even if the plan would otherwise have had a passing score on the EPSC. ISS’s stated aim is to prevent plans with a lack of shareholder-friendly features from passing the EPSC based on a strong showing on the Plan Cost and Grant Practices pillars of the EPSC. This new negative overriding factor will initially apply only to S&P 500, Russell 3000, and non-Russell EPSC models.
Takeaways
Companies taking equity incentive plans for shareholder approval on or after February 1, 2026 and seeking a positive voting recommendation from ISS should review and evaluate the impact of the changes to the EPSC, including to:
- Ensure that their equity plan includes sufficient positive features to avoid a negative override (e.g., minimum vesting, lack of liberal recycling, no dividends/equivalents on unvested awards, etc.); and
- Consider adoption of individual cash-denominated award limits for non-employee director awards, and whether any existing stock-based director award limit should instead be expressed in dollar terms.
Further details of the EPSC changes should be available when ISS publishes its US Equity Compensation Plans FAQ, which is expected to be updated in mid-December to reflect the above changes.
