Don’t Be Surprised By Your 2026 Glass Lewis Pay-for-Performance Score
Recent headlines regarding Glass Lewis’ proxy voting policies have focused on its announcement that it is abandoning its standard voting policy and encouraging its clients to develop customized voting policies. This change is certainly an important one to monitor in the evolution of the investment stewardship landscape. However, it will not be put in place until 2027, and there are still many details to be filled in regarding how it will be implemented and the implications.
Meanwhile, Glass Lewis has announced a separate change that has gone under the radar: an updated Pay-for-Performance (“P4P”) model. This new model will be applied for 2026 annual meetings for U.S. companies, and it features new tests based upon new factors (described below).
While the P4P model is the foundation for Glass Lewis recommendations on Say-on-Pay proposals, Glass Lewis’ compensation team conducts a qualitative review of the model’s outputs and a company’s proxy statement before providing a formal recommendation. Therefore, the quantitative model’s output does not determine a Glass Lewis recommendation on its own. However, it is a key factor and can inform what type of disclosure the Glass Lewis team looks for in a company’s proxy statement when determining whether to recommend FOR or AGAINST a Say on Pay.
As companies begin to draft their proxy statements for 2026, they should understand how they will be scored under the new model and how a compelling narrative within the Compensation Disclosure and Analysis can be the deciding factor in receiving a FOR or AGAINST recommendation from Glass Lewis.
Glass Lewis’ P4P Model: How it Works and What Changed
Glass Lewis’ P4P model runs a series of quantitative tests and has a qualitative overlay to it. Previously, the test scored companies on an A through F scale, where (oddly enough) a C letter grade represented the highest alignment between pay and performance. Glass Lewis has now changed the scoring to a 0-100 scale, where 100 represents the best score.
The new model has five quantitative tests, two of which are new. Glass Lewis does not disclose the weighted value of the various tests. Each test compares some definition of “pay” to some definition of “performance”. The metrics used and the benchmark companies vary by test.
Test 1: Granted CEO Pay vs. Total Shareholder Return (“TSR”)
- Calculation: Five-year weighted average measurement period (three years minimum)
- Companies are Compared to: Glass Lewis’ peer group
Test 2: Granted CEO Pay vs. Financial Performance
- Calculation: Five-year weighted average measurement period (three years minimum)
- Companies are Compared to: Glass Lewis’ peer group
Test 3: Total Granted Named Executive Officer Pay vs. Financial Performance
- Calculation: Five-year weighted average measurement period (three years minimum)
- Companies are Compared to: Glass Lewis’ peer group
Test 4: CEO Short Term Incentive Payouts vs. TSR (NEW)
- Calculation: Measured over five one-year periods and averaged
- Companies are Compared to: Market benchmarks (i.e., S&P 500 or Russell 3000)
Test 5: CEO Compensation Actually Paid (“CAP”) vs. TSR (NEW)
- Calculation: Ratio of five-year aggregate CEO CAP and five-year cumulative TSR
- Companies are Compared to: Companies with similar market caps (regardless of sector)
Qualitative Overlay
This test formalizes the qualitative factors Glass Lewis has often assessed when reviewing Say-on-Pay. Though this should not be viewed as a comprehensive list, unfavorable responses to the following questions without appropriate disclosure and rationale could increase the likelihood of a recommendation against Say-on-Pay, while positive responses could help overcome poorer results in the quantitative tests:
- Any one-off awards granted?
- Any upward discretion exercised?
- Is fixed pay greater than variable pay?
- Are incentives unlimited / not disclosed?
- Is maximum Long Term Incentive (“LTI”) Plan payout potential excessive?
- Is there a short vesting period for LTIs?
- Are any performance goals not disclosed?
Notably, the two new tests compare companies’ performance to an index or companies of a similar market cap, regardless of sector. As a result, companies in challenged sectors that have outperformed their sector peers may still be tagged as “underperforming” in these tests, which can negatively impact the output of these tests.
Don’t be alarmed by a lower than anticipated P4P score – plan for it. Reviewing proxy disclosures is still a key part of the Glass Lewis process. Thoughtful, proactive proxy disclosures and an effective narrative can help drive a successful outcome at your 2026 meeting. When drafting disclosures, keep in mind that Glass Lewis’ “starting point” may be slightly different than in previous years.
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