Excessive Executive Compensation: Investor Guidance

Introduction

For decades, ICCR members have called attention to the widening gap between corporate executive pay and the compensation of everyone else. In recent decades, the average CEO of the largest U.S. company has made around 300 times as much as the median worker. This gap highlights a fundamental imbalance in how companies distribute resources, with outsized executive compensation awarded alongside wages that often fail to meet the basic needs of most employees.

This wasn’t always the case. In 1965, CEOs were paid just 21 times as much as a typical worker.

While researchers point to many factors contributing to skyrocketing executive pay packages, this report focuses on the role investors play. Investors have, in large part, enabled excessive pay packages by voting with management on Say-on-Pay proposals. Overall shareholder support for management’s Say-on-Pay proposals averaged over 90% among Russell 3000 companies in 2025. This is in spite of research suggesting a weak or negative correlation between the growth in executive pay and shareholder performance. America’s largest investment companies, BlackRock, Vanguard, State Street and Fidelity, are among the strongest supporters of executive pay packages. Even Elon Musk’s trillion dollar Tesla pay package passed with more than 75% support from voting shares last year.

ICCR’s Advancing Worker Justice program launched the Excessive Executive Compensation (EEC) working group in September 2025 to provide a learning forum for investors seeking to adopt or strengthen their own proxy voting guidelines and take steps to hold asset managers accountable for their Say-on-Pay and Equity Incentive Plan votes.

• As ICCR launches this new campaign, we seek to empower investors with updated fiduciary tools and renewed moral clarity to encourage executive compensation practices that are guided by values of fairness, stewardship and shared prosperity at all companies.
• This report lays out opportunities for investors to:
• Learn the role ICCR played in advancing Say-on-Pay voting rights for investors;
• Understand the systemic risks that income inequality and excessive executive pay pose to long-term diversified investors;
• View examples of investors who are addressing these concerns in Stewardship frameworks including Investment Policy Statements, Investment Beliefs or other governing documents, as applicable; and
• Strengthen proxy voting guidelines to ensure compensation issues are being addressed appropriately.

This report is also expected to be useful for asset owners who want to analyze their external managers’ voting records and stewardship practices.

This report focuses on a select handful of investment policy statements and guidelines from ICCR members and peers with clear guidelines on addressing excessive executive compensation and income inequality. Where permission has been granted, the organization is cited and a link to its guidelines are provided; others are anonymized by request.

ICCR invites investors, asset owners, asset managers, and other market participants to join us in advancing these actions to strengthen executive compensation stewardship and support long-term market resilience.

ICCR’s History of Engagement on Executive Compensation, Living Wages, and Inequality

From its earliest days, ICCR has grounded its work in the principles of equality and justice, particularly confronting apartheid in South Africa. Awareness of how corporate practices could entrench economic inequality and racial disparities helped shape ICCR’s approach to shareholder advocacy and set the stage for its first campaigns on EEC and living wages.

Source: https://www.sechistorical.org/collection/papers/1990/1992_0213_BreedenCompensationT.pdf

Executive Compensation

In 1992, the U.S. Securities and Exchange Commission (SEC) amended its proxy rules, clarifying shareholder rights under Rule 14a-8 and facilitating greater shareholder engagement on governance issues, including executive compensation. Since that time, ICCR members have actively engaged hundreds of companies seeking ways to provide checks and balances on runaway executive compensation. As pay rose astronomically, shareholders had little recourse beyond voting against board members or filing shareholder proposals. In 1997, the AFL-CIO first published its Executive Paywatch website to draw public attention to rising CEO pay levels.8 Over the years, the AFL-CIO, other union funds, and other investors filed proposals to limit a variety of abusive pay practices including excessive golden parachutes, the accelerated vesting of equity awards, stock option expensing, tax gross-ups, and preferential executive retirement benefits.

The United Kingdom introduced a requirement in 2002 for UK-incorporated companies to hold an annual advisory vote on the compensation practices for both executive and non-executive directors. In 2006, Boston Trust Walden and the American Federation of State, County and Municipal Employees (AFSCME) began presenting this concept to U.S. companies. Investors filed shareholder proposals requesting that companies implement an annual vote, later named “Say-on-Pay.” In 2007, Aflac became the first publicly traded company to adopt Say-on-Pay, and CEO Daniel Amos explained his decision, “Our shareholders, as owners of the company, have the right to know how executive compensation works…An advisory vote on our compensation report is a helpful avenue for our shareholders to provide feedback on our pay-for-performance compensation philosophy and pay package.”

*Source: https://corpgov.law.harvard.edu/2009/04/29/compensation-proposals-in-2009-proxy-season/
**Source: https://home.treasury.gov/news/press-releases/tg219

Shareholder proposals calling for the adoption of Say-on-Pay votes increased from 49 in 2007, to 72 in 2008, to 102 in 2009. Majority support for Say-on-Pay proposals grew from 8 companies in 2007 to 14 in 2008 and 19 in 2009. These results helped make the request for an annual vote on executive compensation credible to the public and Congress, which was considering approaches to curb the kind of excessive risk-taking that had caused the global financial crisis.

In 2007, Pfizer, AFSCME and Boston Trust Walden convened meetings with companies to discuss executive compensation and the “Say-on-Pay” option. At the same time, the House Financial Services committee held hearings on the issue, led by Chair Barney Frank and Chris Dodd in the Senate. Tim Smith, representing Boston Trust Walden, testified at these hearings in support of Say-on-Pay, while the Business Roundtable spoke in opposition.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) was drafted in 2009 and the mandate for public company Say-on-Pay was included in the final text. The provision was contentious and opposed by many companies and compensation experts; however, one of the major arguments for its inclusion in the legislation was the fact that investors had been actively seeking such a change through private ordering. On July 21, 2010, President Barack Obama signed the Dodd-Frank Act into federal law.

Despite the imposition of Say-on-Pay vote requirements for public companies, overall levels of executive compensation did not decline. Nevertheless, investors gained a tool to hold board compensation committees accountable for their decisions on executive pay packages, and research highlights the impact the votes had on pay structure to better incentivize long-term performance. For example, proxy advisor Institutional Shareholder Services (ISS) identified bad practices such as tax gross-ups on golden parachutes and recommended voting against all pay packages at companies that had them. As a result, companies eliminated this practice. Today, shareholders typically support the vast majority of Say-on-Pay votes.

Say-on-Pay did push companies away from the worst practices and closer to eliminating egregious practices. Where it was less successful was addressing the increasing quantum of pay. Now that executive pay is increasingly viewed as excessive, investors have rebelled against exceedingly high pay packages at companies like Oracle (2012-2017),18 JPMorgan (2022)19, Microsoft (2025), and Tesla (2024 – 2025), to name recent examples.

Ensuring Fair Compensation Across the Workforce

ICCR’s work on compensation has also historically supported those working in industries with a legacy of poverty wages. ICCR’s first campaign on living wages began in the 1990s. ICCR, the Center for Reflection, Education and Action (CREA), and the Coalition for Justice in the Maquiladoras (CJM) worked together to engage companies and release a study documenting the sweatshop wages U.S. companies paid maquiladora workers – those working for manufacturing plants in Mexico with parent company administrative facilities in the United States – and the fact that those workers could not afford to provide the most basic needs for their families.22 The study “… found both that workers are paid low wages and the cost of living is high” explained Dr. Ruth Rosenbaum, Executive Director of CREA. “The study refutes the commonly-stated rationale of officials of U.S.-based companies that workers are paid less in Mexico because the standard of living is lower and products and services are cheaper.”

ICCR members filed shareholder proposals calling on U.S. companies to publicly report what they paid their maquiladora workers and to close the gap between what they paid and what workers needed. According to ICCR’s records, 87 proposals were filed from 1990 to 1999.

At the start of the COVID-19 pandemic in March 2020, ICCR issued an investor statement calling on companies to protect employees, including by providing paid sick leave and maintaining employment, and importantly, to maintain “financial prudence” by suspending share buybacks and limiting executive and senior management compensation for the duration of the crisis. The pandemic did indeed prompt a significant, although temporary, shift in executive pay practices, with companies adjusting compensation structures to better align with the financial challenges, operational uncertainty, and changing stakeholder expectations facing companies.

ICCR continues to advocate for workers’ rights in supply chains and companies’ own operations in the U.S. and Canada, following the launch of ICCR’s Advancing Worker Justice (AWJ) program in 2022. A 2023 investor statement representing $4.5 trillion in assets under management and advisement called on U.S. companies to take steps towards the payment of a living wage to direct and contract workers, in line with international human rights standards.

As part of this engagement, ICCR and its members argue that whether a company pays high wages to attract, retain, and motivate a high productivity workforce is decision-useful information for investors. Wage increases for the lowest earners can also aid in addressing broader systemic risks such as income inequality and gender and racial disparities. Current disclosures of CEO-to-median-employee pay ratios helps investors compare a company’s workforce compensation practices against its peers. Employee morale and productivity and perceptions of pay fairness are impacted by employers overall compensation structure. Research indicates that high CEO-to-median-employee pay ratios can hurt employee loyalty and motivation, decreasing the productivity of a company’s workforce. The impact of high CEO pay on employee productivity results in higher employee turnover and lower job satisfaction.

This history of engagement illustrates how shareholder advocacy on executive compensation and fair and living wages brought inequality to the forefront of corporate governance, and underscores why investors must now consider excessive executive pay and widening inequality as a potential source of systemic risk.

Addressing Executive Compensation and Income Inequality in Stewardship

The impact of massive compensation inequalities is not solely a firm-level governance issue. Evidence increasingly suggests it is linked to broader systemic risks that impact market performance. Several ICCR members and peers demonstrate attention to executive compensation and income inequality as part of their fiduciary duty and have concluded they have a responsibility to become more active in promoting compensation best practices and managing risks posed to their portfolios. These investors point to concerns over financial instability that arises from excessive executive compensation, insufficient worker wages (aka “poverty wages”), and misaligned incentives between managers and shareholders. And considering the systemic nature of these trends, these risks cannot be reduced by portfolio diversification. These investors are pursuing this work by establishing standards and formal commitments.

Excessive Executive Compensation and Income Inequality are Systems-Level Risks

Some organizations incorporate this systems-level attention to executive compensation and income inequality in their proxy voting guidelines, while some integrate it into their investment policy statements, and others have created supplemental guidelines that stand alongside investment and proxy voting policies. The examples below are a limited sample of how ICCR members and other investors are addressing executive compensation and income inequality risks from a systems-level investing perspective and are not meant to be a comprehensive survey.

Sample Language from Firm’s Policy Statements, Engagement Standards and Proxy Guidelines

Adasina Social Capital

Adasina addresses concerns over executive compensation and income inequality in its Social Justice Investment Criteria. Adasina’s attention to economic justice includes a focus on both subminimum wages and excessive executive compensation in its Economic Justice Criteria:

The Economic Justice Criteria aim to create a fair, sustainable, and equitable financial future for all people and communities. We educate investors on the risks posed by economic injustice in the public markets and mobilize investors to discourage companies from participating in economically unjust systems.

These commitments are further established in Adasina’s Proxy Voting Policy and Guidelines32 which restates their Social Justice Investment Criteria and connects these issues to corporate ethics.

Azzad Asset Management

Azzad addresses stewardship concerns over executive compensation in their Proxy Voting Guidelines. These guidelines put a focus on “responsible executive compensation” and link this to long-term financial performance and social goals:

Our proxy voting guidelines focus on the following three issues we believe help enhance long-term financial results while supporting broader social goals. These areas were selected because they align with Azzad’s ethical investment philosophy and long-term shareholder value, reflecting Azzad’s commitment to sustainable and ethical investing:

1. Promoting human rights and economic development

2. Ensuring responsible executive compensation and corporate accountability

3. Responding to environmental challenges

Domini Impact Investments

Domini addresses the systemic risks of income inequality and executive compensation in their Impact  Investment Standards. Domini states that “our environmental and social standards help us identify strong, long-term investments.” In a section dedicated to “Compensation and Benefits” they state:

Appropriate levels of compensation and benefits are a foundation upon which the relationship between corporate management and the average employee is built. Abuses of this relationship damage not only executives’ credibility with workers, but undermine shareholders’ trust in management and, more broadly, the public’s trust in business itself. Excessive pay gaps can perpetuate income inequality, which in turn can create poverty, societal instability, and systemic risks. By contrast, companies that take steps and align executive compensation to assure gender and racial equity in pay, appropriate commitments to the financial well-being of their retirees, and a management bonus system that rewards implementation of environmental and social policies as well as long-term financial goals, can build their credibility with their stakeholders and align their companies’ reward systems with larger societal goals. We consider how a company handles issues of compensation as a strong indicator—and indeed determinant—of corporate culture and the quality of management.

L&G – Asset Management (L&G)

L&G seeks to have pay aligned with performance and also addresses income inequality as a systemic social factor in their Executive Remuneration Principles – North America. These principles go on to state:

L&G believes that companies’ management teams should be rewarded for delivering a strategy that is sustainable, profitable and creates value for both its long-term investors and other stakeholders. However, at some companies, the total pay is poorly aligned with performance, coupled with insufficient pay for the bottom quartile of workers.

L&G’s principles on executive compensation has been based on pay for performance, however, we view pay inequality as a potential source of risk to our investment portfolios. Therefore, we have created a new policy that aims to link both of these issues. We now vote against the say on pay resolution of any S&P 500 company whose CEO to median employee pay ratio is greater than 300 and the company’s total shareholder return relative to the S&P 500 underperformed when measured over a three-year period.

NEI

NEI’s Responsible Investment Policy includes a “Statement on inequality” which describes their stewardship philosophy and approach. This document states:

We define inequality as the unequal distribution of opportunity, whether that opportunity is the accumulation of wealth or access to fundamental human requirements such as healthcare, education, and a clean environment. According to the International Monetary Fund, excessive inequality can erode social cohesion, cause political polarization, and ultimately lead to lower economic growth. At the corporate level, inequality can impact employee morale, create legal risks, and negatively impact recruitment and retention. We believe inequality is a significant threat to social cohesion and a systemic risk to our portfolio.

The policy goes on to make a series of commitments to systemically address this issue through engaging companies, voting proxies and “support[ing] investor networks and coalitions that are working to address key inequality issues”.

NorthStar

NorthStar has “six pillars” that guide their socially responsible investing work. One of these pillars is “economic equity”. Northstar’s Proxy Voting Guidelines (2025) define how economic inequality impacts the economy using the following language:

NorthStar believes that outsized executive pay and the strategies companies used to fund those pay packages are significant drivers of our country’s persistent economic inequality and the financial strain faced by ordinary workers. We also believe that economic inequality is both an ethical and financially material problem for companies to address… . Shareholder efforts to hold companies accountable for exorbitant executive pay have evolved since that time. Voting on executive pay is a critical marker of NorthStar’s commitment on this issue. In recent years, NorthStar has always had stringent executive pay screens for our proxy voting activities.

Schroders

Schroders has an Engagement Blueprint which establishes its vision and expectation for engaging corporations on the high and low ends of compensation. Executive compensation is addressed in the Blueprint’s Corporate Governance standards, which asks corporations to:

Explain how remuneration policies and practices promote the desired culture at all levels of the organisation, including the executives, management and entire workforce.

This Engagement Blueprint addresses minimum wages in its Human Capital Management standards which states:

This plan focuses on actions from 2024 to 2027 to support decent work standards within financial markets and among large, influential companies, as well as moderating excessive executive compensation. It prioritizes financial market advocacy to foster awareness about inequality and collaboration to mitigate it.

This plan goes on to list UPP’s commitments focused on corporate engagement, proxy voting, policy advocacy and external manager collaboration.

Proxy Voting Guidelines

Proxy voting guidelines play a central role in how investors implement governance expectations related to executive compensation. While many institutional investors articulate their stewardship commitments in broad terms through Investment Policy Statements (IPSs), which outline general principles and beliefs about responsible investment, proxy voting guidelines translate those commitments into specific voting policies. These guidelines establish the criteria investors use when evaluating compensation structures, board oversight, and shareholder proposals. In this way, proxy voting guidelines function as the primary operational tool through which investors exercise governance oversight, enabling them to monitor executive pay, express support or dissent through proxy votes, and engage companies when compensation is misaligned with performance or long-term value creation.

Proxy voting guidelines typically address a broad range of shareholder voting issues beyond compensation, including board structure, shareholder rights, and environmental and social oversight. Compensation is intertwined in one way or another with almost all elements of governance. While this report focuses primarily on the guidelines of investors that share ICCR’s values, the guidelines of public pension funds provide examples of language that explain why executive compensation is a universal issue of concern.

This report focuses on guidelines that specifically address issues that have contributed to the upward trajectory of compensation. Where possible, examples of language currently used in ICCR member guidelines is included. This can provide an example for other investors who may have limited time but want to address the issue.

Each section below begins with an explanation of why particular themes were selected. Many other elements of executive compensation can be problematic. For example, many guidelines appropriately flag excessive perquisites as a governance concern. While these benefits are a troubling reflection of inequality and raise questions about oversight, they generally represent a relatively small portion of total compensation and have not been a primary driver of long-term pay escalation. For that reason, this report does not address perquisites in detail. Similarly, policies that align executive and shareholder interests are critical. Most proxy guidelines address stock ownership or stock holding requirements, which require executives to maintain a meaningful level of company stock. These policies are strongly supported, and the most rigorous versions are preferable, however they are not the focus of this report.

Clawback provisions, policies that allow companies to recoup previously awarded compensation in cases of financial restatement or misconduct, represent one of the major governance successes of the past two decades, and commend those who worked to embed these requirements in regulation and exchange listing standards. Nonetheless, because clawbacks are primarily corrective safeguards rather than drivers of pay growth, they are not discussed in detail below.

The primary focus in this report is on those elements that have contributed most significantly to sustained and sometimes sharp increases in overall pay levels and those that may serve as brakes on the continued increase.

What follows is a brief explanation of why this report highlights these specific issues and how they have been categorized:

Say-On-Pay

The Say-on-Pay vote typically happens annually and gives shareholders the opportunity to express or withhold support for the pay of named executive officers, including the CEO. This is an advisory vote, which means that voting results are taken as an expression of investor confidence but do not have any binding power.

Quantum of pay: Although advisory Say-on-Pay votes have curbed certain problematic compensation practices, they have not meaningfully restrained overall pay levels (“quantum”), prompting some ICCR members to advocate for clear quantitative thresholds.

Peer groups: The overuse of peer groups to benchmark pay has been a key element in the cycle of ratcheting pay.

Compensation design and metrics: This section addresses how pay is structured and how performance is measured, particularly using the prism of how these elements contribute to increasing pay. This is also where particular items of pay are discussed.

One-time awards: Awards given to new hires as well as special “retention” awards deserve extra attention not just on quantum concerns, but because they also may ultimately increase pay at peer groups.

Compensation Committee

In some cases, investors will vote against the reelection of directors who sit on the Compensation Committee as a way to express escalated dissatisfaction with decisions being made around compensation.

Equity Plans

Equity compensation plans authorize companies to grant stock awards or stock options to executives and employees and have been subject to approval for a much longer period of time than advisory votes. These plans are subject to shareholder approval as required by applicable stock exchange listing requirements.

Say-On-Pay

Guidelines Related to Quantum of Pay or Pay Multiple

A primary driver of this report is ICCR’s consistent concern with the overall scale, or quantum, of executive compensation. Over recent decades, executive compensation has risen much faster than stock prices and far more rapidly than pay for the average employee. Establishing rational thresholds by updating proxy voting policies to include explicit thresholds or absolute pay is a powerful choice that concerned investors can take. It also has the advantage of being concrete and reasonably easy to consistently implement once the decision has been made.

As noted in prior sections, high pay levels contribute to inequality that is fundamentally problematic, harms employee morale, and signals governance structures that prioritize executives over workers or communities.

This review of investors’ guidelines begins by considering language that some ICCR members and peers have adopted that creates a quantitative cutoff which automatically triggers a vote against compensation. These limits can be created using various yardsticks: comparing CEO-to-median-worker pay ratios disclosed in proxy statements, comparisons to national household income levels, fixed dollar caps, or some combination. Each method has strengths and weaknesses, and as discussed below they can be used separately or together.

Vote Against Compensation Packages Deemed Excessive Based on CEO-to-Median-Worker Pay Ratio as Disclosed in the Proxy Statement

• NorthStar’s guidelines say it votes against pay packages “unless named executive officer pay (including equity, stock options, bonuses, and benefits packages) to median employee pay is a ratio less than 100:1 (CEO Ratio)”. Northstar’s guidelines are also notable for their discussion of shareholder proposals on the topic and are extensive and detailed: “Vote FOR proposals to prepare reports seeking to compare the wages of a company‘s lowest paid worker to the highest paid employee. Generally vote FOR proposals that seek to establish a fixed ratio between the company’s highest paid workers and the lowest paid or ‘median pay’ workers.”
• Adasina Social Capital votes against in cases where the ratio is more than 100:1.
• As You Sow votes against remuneration proposals when a company has “a CEO-to-median-employee ratio higher than 100:1” and the company hasn’t provided justification for its ratio.
• Trillium votes against when the company’s CEO-to-median-worker pay ratio exceeds 50:1. When CEO to worker pay ratio is not disclosed, Trillium votes against CEO pay that exceeds 50 times the median household income for that country.
• Marin County, CA pension Fund notes in its guidelines “MCERA believes that executive pay proposals in which CEO compensation is 100 times greater than the median compensation of other company employees are excessive and detrimental to the long-term performance of the company.”

There are a few limitations with using the proxy-disclosed data by itself. Most significantly, the U.S. is currently the only market requiring this disclosure, so if funds wish to take a stance on the issue in other markets, they must find alternatives, such as government statistics on broader population measures of income. Companies also have significant discretion in how they calculate median employee pay, including the extent to which part-time workers, international employees, or partial-year employment are included. In addition, there is a great deal of variability by sector within a market. Because of this, there are funds that prefer to focus on market-defined analysis of excess. Even in those cases, proxy-disclosed pay ratio may be used as an additional measure.

Vote Against Compensation Packages Deemed Excessive Compared to Broad Population Measures of Income

• SHARE’s 2024 Guidelines define quantum as the total amount of executive compensation, and they use several benchmarks to evaluate quantum, including specific pay ratios against national averages and internal worker pay. Specifically, the guidelines use the average annual pay of all workers in the country of incorporation (specifically for Canada, the U.S., and the UK) as a primary benchmark for total compensation, and when the total annual compensation for a single executive exceeds 150 times the average annual pay of workers in that country, it is considered a cause for concern and triggers “special scrutiny”. If the total compensation for any named executive exceeds 200 times the national average annual wage, the guidelines recommend voting against the executive compensation.
• The University Pension Plan (UPP) also considers the country of incorporation in its analysis. In the U.S. and Canada, and elsewhere on a case-by-case basis, UPP does not support executive compensation if the total compensation of any individual executive is greater than 200 times median pretax household income in the country of incorporation, unless a compelling justification is provided as to how the compensation awarded is in the long-term best interest of the company and appropriate in the context of the experience of all stakeholders involved in value creation for the company.
• NEI makes use of both the pay ratio and the respective median household income in a given market. “The quantum of CEO or other individual NEO compensation at a Canadian or U.S. company is excessive relative to the respective median household income (more than 120 times at Canadian companies and more than 280 times at U.S. companies). Evidence of equitable compensation practices within the company, such as the use of vertical comparison metrics in setting compensation, will be considered as a mitigating factor.” NEI sets the quantum range of concern based on currently available data: For U.S. companies: 280 to 375 times. U.S. median household income was approximately U.S. $22.6 million to $30.2 million. For Canadian companies: 120 to 190 times. Canadian median household income was approximately C$12.2 to C$19.3 million.50 And if executive pay is “extremely” excessive, that will also trigger a vote against the compensation committee members on top of voting against the say on pay. NEI defines extremely excessive pay as pay that is above 375 times the median household income in the U.S. and above 190 times the median household income in Canada.

Additional Considerations Related to Quantum

• SHARE considers employee morale as a factor. The 2024 guidelines state, “Although there is no single, optimal ratio of executives’ pay to workers’ pay, it is not in the best interests of any company for the gap between executive and employee compensation to be large enough to affect the company’s morale or long-term performance, or to damage its reputation.”
• French asset manager Groupe des Assurances Mutuelles Agricoles (Groupama) notes, “the evolution of this ratio must be consistent with the evolution of performance. An unjustified increase of this ratio is likely to motivate a negative vote on a proposal to increase the fixed compensation of executives.” Groupama AM’s 2021 voting policy notes that a vote on compensation has been required in France, since 2020, having previously been adopted in the UK and U.S. One of the fundamental principles in executive compensation they adhere to is, “Any increase in the fixed part of the compensation must be explained and linked to the evolution of the pay ratio.”

With multiple years of data available given required corporate disclosure, investors are now able to track changes to both executive and employee compensation over time. This is information that proxy advisory firms should be able to easily provide if asked.

Absolute Dollar Caps

Another approach is to set an upper threshold on pay with an absolute dollar cap. This method is favored by some investors because it is straightforward to apply. A clear cap also provides a simple, values-aligned standard that avoids continual upward ratcheting through peer benchmarking and reinforces expectations about proportionality and accountability. The figure of $10 million is most broadly used by members of ICCR.

• For example, Domini, Friends Fiduciary, and Everence vote against advisory Say-on-Pay proposals where total CEO compensation exceeds $10 million.

Compare Pay to Outliers

Comparing an executive’s pay to pay at peer companies is another way to address the issue of quantum. As discussed below, comparisons to peers have tended to inflate pay, particularly salaries. Shareholders now have the opportunity to push the other way. Three examples of funds using such a comparison include:

• Adasina Social Capital votes against CEO pay when it is greater than the 75th percentile of peers.
• As You Sow votes against the management remuneration proposal and compensation committee members if CEO pay exceeds 75% of the peer group.
• NEI uses peer comparison in addition to wage comparison, voting against the incumbent members of the compensation committee on top of voting against the say-on-pay when “The quantum of CEO compensation is notably excessive relative to peer companies (at 2 times the peers).” Anything between “1.5-2x the peers” would lead to vote against the say-on-pay only.

By setting the threshold at the 75th percentile, Adasina’s and As You Sow’s policies create some downward pressure. As discussed below, even the pay set at the 100th percentile of peers will gradually ratchet up because increases in fixed pay given at any company for any reason (promotion, new hire) become part of the average.

Any policy that focuses on peers is particularly useful when the portfolio includes companies of a range of sizes.

Limit Peer Group Bias in Pay Inflation

Asymmetric peer benchmarking has played a role in the way CEO pay escalated so rapidly, beginning in 1992 when the SEC required new compensation disclosures. While some companies selected their own peers based on industry, market capitalization or revenue, many companies – and compensation consultants – often selected peers on more qualitative grounds. When some small companies were asked why they selected much larger companies for their peer groups some contended that those peers were aspirational. Beginning in 2012, ISS began constructing peer groups of 14-24 companies using the Global Industry Classification Standard and some other measures.

Even with appropriate peer selection, annual benchmarking reinforces the upward cycle because each year’s pay decisions reset the “market” baseline. A large increase for promotion or new hire becomes part of the peer data used the following year. When multiple companies incorporate these elevated figures into their benchmarks, isolated increases compound into a broader upward drift in compensation levels, even absent comparable changes in underlying performance or labor markets. This was particularly evident when many companies aimed their comparison above the median or even at the 75th percentile of peers.

Today, the effects of peer benchmarking push compensation up primarily in terms of salary. This inflates entire pay packages, since bonuses are based on multiples of salaries.

Large shareholders’ objections and resulting changes in proxy advisory firm analysis related to appropriate peers have helped slow the rate of increase, but significant excess remains embedded in the system. Most guidelines that address benchmarking call for clear disclosure of which peers are selected and why.

• Schroders shared that it encourages companies to avoid overly curated comparator groups, and to select sector or wider index groups. In addition, it generally discourages fixed or variable pay increases that are driven solely by benchmarking.
• L&G – Asset Management (L&G) states, “Peer groups should be selected carefully and be linked to the area of business in which the company operates – or a wider benchmark that is logical. We would expect the committee to explain any benchmark being used.”

Compensation Design & Incentive Metrics

This section addresses how pay is structured and how performance is measured, particularly using the prism of how these elements contribute to increasing pay. Executive compensation refers to the total pay package provided to the senior executive officers, primarily those disclosed in the Summary Compensation Table of the proxy statement, including the CEO. Compensation typically includes several components: base salary (fixed cash pay), annual bonuses (short-term incentives tied to yearly performance), long-term incentives (often stock awards or stock options that vest over multiple years), retirement benefits, and perquisites (“perks”) such as personal use of corporate aircraft.

Compensation design refers to the balance between salary, annual bonuses, and long-term equity awards, as well as the time horizons over which performance is assessed. Metrics are the specific financial or operational goals used to determine payouts, such as earnings per share, total shareholder return, revenue growth, or return on capital. The choice of metrics and performance targets can significantly influence both pay magnitude and corporate behavior. We pay special attention here to ways these can be abused.

Investors broadly agree that incentive structures genuinely promote durable value creation, appropriate capital allocation, and responsible risk management.

Incentive Design – Pay for Performance

Few phrases appear as consistently in proxy voting guidelines as “pay for performance”. The phrase was first popularized by union pension fund shareholders that filed proposals62 on the topic responding to bonuses paid during periods of poor company results, suggesting that the bonuses were not justified. Some shareholders identified these as “pay for failure”. Most institutional investors consider “pay-performance” alignment essential to long-term shareholder value. Persistent misalignment can signal weaknesses in governance, incentive design, and board oversight.

NEI’s guidelines provide an excellent articulation of several common expectations:

• Bonuses should not be paid when company or individual performance has been poor;
• Short-term incentive awards should be entirely performance-based;
• At least two-thirds of short-term awards should rely on quantitative metrics;
• Long-term awards should be predominantly performance-based (preferably at least two-thirds);
• Compensation committees should avoid broad or unexplained discretion;
• Performance frameworks and formulas should be clearly disclosed;
• If performance goals are lowered mid-cycle, payouts should be adjusted downward accordingly;
• Discretion, when used, should be limited and fully disclosed.

The emphasis is not merely on having performance metrics, but on ensuring rigor, transparency, and limited discretionary override.

Rigor Around Goals and Metric Integrity

After seeing many years of executives rewarded for performance that does not appear to align closely with fundamental issues, shareholders increasingly focus on the metrics themselves. Beyond alignment in principle, many investors now emphasize the integrity and rigor of the metrics in both short- and long-term plans. The question is no longer simply whether pay is performance-based, but whether performance goals are sufficiently challenging, transparent, and resistant to manipulation.

In addition to rigor, key considerations include:

• Use of multiple, clearly articulated performance metrics for long-term awards;
• Avoidance of single-metric structures that increase risk of misalignment;
• Transparent reconciliation between GAAP (Generally Accepted Accounting Principles) results and adjusted or non-GAAP metrics;
• Prevention of financial engineering that inflates reported results without improving underlying performance.

For example:

• Some investors prefer inclusion of relative Total Shareholder Return (TSR) metrics. The commonly used metric of TSR measures the sum of what a stock has returned over a period of time. Executives can receive large sums based on market or industry fluctuations. Relative shareholder return compares the performance of a company stock to its peers or index, often expecting at least median (50th percentile) peer performance before threshold vesting occurs.
• SHARE expresses opposition to per-share metrics (e.g., EPS) when companies engage in significant share repurchases, noting that buybacks may artificially inflate such measures, and also cautions against simple stock price targets that may reflect market momentum rather than operational performance.

Concerns about adjusted earnings have also been highlighted in academic and policy research, including analysis from the Brookings Institution, noting that exclusion of recurring costs, such as restructuring charges or equity compensation expense can materially inflate incentive outcomes.

These critiques reflect a broader concern that compensation metrics may reward financial optics rather than durable economic value creation.

Performance Measurement Periods

In addition, investors scrutinize the length of performance and vesting periods. The long-term systemic perspective of ICCR members supports longer periods of performance measurement as well as strict holding requirements.

• L&G – Asset Management (L&G) expects performance periods of at least three years, supported by multiple metrics.
• UBS Asset Management has flagged concern when long-term equity awards vest in under five years.

Short vesting periods are frequently viewed as weakening long-term alignment and increasing sensitivity to short-term market movements.

ESG Metrics

For many faith-based and long-horizon investors, the question is not simply whether executives are rewarded for performance, but whether the definition of performance itself reflects sustainable prosperity, fair distribution of value, and stewardship of human and environmental capital.

Some companies have developed a corporate strategy to address their material sustainability risks, and thus it only makes sense to reflect that in their executive compensation. A growing subset of investors explicitly call for the integration of environmental and social performance measures into executive incentive frameworks.

• SHARE explicitly recommends “linking executive pay to well-considered social and environmental performance measures, such as customer satisfaction and employee health and safety.”67
• New guidelines published by proxy advisor GIR, a proxy advisor part-owned by SHARE, add another element:

Increasing executive compensation or paying bonuses during layoffs is contrary to the principle of performance-based compensation. In the event of restructuring resulting in layoffs, any increase or benefit granted to executives is considered unjustified.

VOTE FOR proposals to prohibit increases in executive compensation during layoffs, including wage freezes, limits on performance-related bonuses, and the cancellation of bonuses.

VOTE AGAINST any compensation that includes increases or bonuses for executives during a period of layoffs.

• Trillium Asset Management votes against compensation where incentives are not tied to science-based climate targets and diversity-related targets.

Annual Bonus Design

Annual bonus levels have risen for several reasons, but a key driver is the increasing use of higher salary-based multiples to set bonus targets. Because base salaries themselves are continually ratcheted upward through peer group benchmarking, these higher multiples compound over time, further inflating the bonus payouts/amounts.

• SHARE states annual bonuses should not exceed two times base salary, and opposes guaranteed multi-year bonuses.

Such caps are intended to prevent excessive upside leverage disconnected from sustained performance.

Problematic Pay Practices

A long list of egregious practices that may lead to a vote against compensation appears in many guidelines. In general an itemized list is practical, particularly when investors are unlikely to have capacity to evaluate each of those issues.

Here are some examples of items listed in guidelines that are problematic practices.

• Excessive discretionary adjustments;
• Guaranteed annual bonuses;
• Backdating of options;
• Excessive perquisites;
• Overly generous employment or severance agreements;
• Incentive structures that reward short-term financial engineering over long-term investment;
• Option repricing without shareholder approval;
• The board exhibits a significant level of poor communication and unresponsiveness to shareholders.

We note that some items (such as option repricing) tend to remain in guidelines even as the practice becomes quite rare. The practices currently being developed by compensation consultants are likely the most concerning. In general, it seems that an idea that ultimately increases the executives’ rewards tends to be quickly adopted by other companies. It is for this reason that most guidelines include a broad catch-all category in their bulleted lists to capture evolving compensation practices.

Evaluation of One-Time Awards

The two times an executive is mostly likely to gain a windfall are when they join a company and when they depart it. While this report mentions severance agreements, they are less inflationary factors precisely because they happen upon departure. Newly-hired executive awards are particularly likely to materially increase overall compensation levels, especially where replacement awards are granted to offset forfeited equity from a prior employer (if the executive had equity plans at their prior employer that will now never vest). Retention awards can be similarly concerning. Individual companies often attempt to explain company-specific justifications for out-sized awards or sharp salary increases, yet totals still can be included in peer analysis by many companies the following year.

Guidelines frequently emphasize that such awards should not undermine pay–performance alignment or create conflicts of interest.

• SHARE’s 2024 Proxy Voting Guidelines outline specific considerations for one-time executive awards, emphasizing that such awards should be reasonable, aligned with performance, and not structured in a way that weakens accountability. SHARE cautions that one-time awards should not create conflicts of interest or dilute the link between pay and long-term value creation.
• Castlefield notes “lack of performance conditions attached to forfeited awards payments will result in an instant vote against.”

Castlefield’s guidelines states: “We expect the performance conditions to consist of a variety of differentiated targets, with a preference for the inclusion of an ESG metric. Any targets must be sufficiently stretching, measurable and relevant. The likelihood of the award from the previous employer fully vesting must be assessed by the company. The proceeds of the payment should vest over at least a three year period and should be a combination of share based and cash awards. The share based awards will help directors to reach their shareholding requirement quicker and better align personal goals with shareholders.”

Change-in-Control Agreements (Golden Parachutes)

A golden parachute is a lucrative contract or agreement between a company and its top executives, guaranteeing significant benefits, such as large severance packages, bonuses, or accelerated stock vesting, generally if the executive is terminated, usually due to a merger, acquisition, or hostile takeover. Following Dodd-Frank there is now a separate vote on golden parachutes when there is a merger. However, these are not binding.

Guidelines also address executive severance arrangements triggered by a change in control. These arrangements are frequently evaluated under both dedicated “golden parachute” votes and advisory votes on executive compensation.

Many investors articulate expectations regarding payout caps as well as triggering mechanisms.

• SHARE opposes plans where change-in-control payouts exceed two times the executive’s annual salary and bonus, and also suggests that severance should not be paid if the executive’s or the company’s performance has been unsatisfactory.
• NEI indicates it will vote against severance arrangements where the quantum is excessive.
• Domini’s guidelines state that an acceptable parachute should:

» Be triggered by events beyond management’s control;

» Not exceed 2.8 times the executive’s “base amount” (defined as average annual W-2 compensation during the two preceding years);

» Be double-triggered (requiring both a change in control and termination).

• Everence provides a broader evaluative framework, including consideration of:

» The presence of excessive entitlements or single-trigger provisions;

» Excise tax gross-ups;

»  Existing limits or shareholder ratification requirements;

» Recent severance-related controversies.

Some investors also note that severance practices may factor into advisory votes on executive compensation more broadly. NEI states it will generally vote against Say-on-Pay where:

• Severance is not contingent upon a change in control;
• The quantum is excessive.

Guidelines That Address the Compensation Committee

Prior to the introduction of mandatory advisory Say-on-Pay votes, one of the primary mechanisms available to shareholders to express concerns about excessive executive compensation (EEC) was to vote against members of the compensation committee. Today, a vote against committee members may be automatically coupled with a vote against the advisory proposal, or may be used as an escalation tool if pay concerns remain unresolved.

A strong, fully independent compensation committee is fundamental to effective governance. While this report does not address board composition in great detail, it is important to recognize that a poorly governed board could contribute to excess pay.

Under certain circumstances, investors may vote against the Compensation Committee when opposing pay:

• The University Pension Plan guidelines note, “Do not support re-election of members of the committee responsible for executive compensation (or, where no such committee has been identified, the board chair or full board) if executive compensation consistently exceeds 200 times median pre-tax household income.”
• NEI  indicates that, in addition to voting against the advisory vote on executive compensation, it will withhold votes from incumbent members of the Compensation Committee where the quantum of CEO compensation is notably excessive (e.g. relative to peers at roughly twice peer levels; or relative to the median household income in the U.S. and Canada respectively at more than 375 times and 190 times).
• Trillium  also explicitly recognizes director votes as a form of escalation when pay concerns are not adequately addressed.

Escalation/Evaluation Based on Say-on-Say Results

For investors considering escalation from a vote against Say-on-Pay to a vote against Compensation Committee members, low support levels on Say-on-Pay coupled with inadequate response often serves as a trigger for further review.

Several investors (e.g., Trillium, Domini) identify approximately 70 percent support as a threshold warranting closer examination.

When such a review is triggered, investors generally focus on:

• The company’s responsiveness to shareholder concerns;
• The quality and specificity of disclosure regarding shareholder engagement;
• Concrete actions taken to address previously identified compensation issues.

Friends Fiduciary summarizes this approach as follows: “The board fails to respond adequately to a previous SOP proposal that received less than 70 percent support of votes cast.”

Equity Awards

Before shareholders were able to vote on executive pay broadly, shareholders only had an opportunity to vote on equity compensation plans. Voting on these plans continues to be an important fiduciary duty. While equity compensation plans may cover a broad section of employees, the vast majority of shares are awarded to top executives.

• Everence guidelines explain what is at stake: “As executive pay levels continue to soar, non-salary compensation remains one of the most sensitive and visible corporate governance issues. The financial crisis raised questions about the role of pay incentives in influencing executive behavior, including their appetite for risk-taking. Although shareholders may have little say about how much the CEO is paid in salary and bonus, they do have a major voice in approving stock incentive plans. Stock-based plans can transfer significant amounts of wealth from shareholders to executives and directors and are among the most economically significant issues that shareholders are entitled to vote on.”

In part because the topic is inherently complicated, and in part because it has been the focus of a great deal of study, the voting guidelines on equity awards are among the most complex.

Equity awards were originally designed to align the shareholders’ interests with those of executives. However, outsized equity awards have been a key driver of excessive CEO compensation. During certain times and in certain sectors executives have received windfalls simply for being in the right place at the right time. This is not in the best interest of shareholders or society at large.

There are three primary types of equity awards:

1. Stock options give individuals the option to buy stock in the future at the market price when granted. In other words, if the price goes up it is something executives can take advantage of, but if the price goes down they have faced no immediate financial losses. There is some concern that this upside-only form of compensation has led to excessive risk-taking in some situations. ISS does not generally classify stock options as performance-based unless they include explicit performance conditions beyond stock price appreciation.
2. Performance-based shares are awarded based on achieving certain metrics. These are generally considered the current best practice. However, to be adequately evaluated the metrics must be thoroughly analyzed (see the discussion of metrics under Compensation Design and Incentive Metrics).
3. Restricted stock (time-based shares) pays out based on the passage of time and continued employment. A large restricted stock grant may suggest the company does not believe its value will increase and wants to guarantee some payout for executives. Time-based restricted pay has been characterized as “pay for pulse”. Once very common, this form of compensation seems to be seeing a comeback and may draw renewed analysis.

All shareholders have certain concerns about equity awards and proxy advisors evaluate them on several grounds. The primary measurements with easy to use quantitative screens are dilution and share usage. Dilution is a measure of how much any additional issuance of stock may reduce existing shareholders’ stake in a company.

Plan design and governance look at such items as vesting terms, performance conditions, change-in-control provisions, repricing prohibitions, and clawback features. It is important that awards are aligned with the company’s long-term performance goal with appropriate metrics. Finally, investors also consider the company’s historical compensation practices and executive ownership when evaluating a plan. If a CEO receives large awards each year and sells them without increasing ownership then any alignment has been severed.

Regardless of award type, investors and proxy advisors evaluate equity plans using both quantitative screens and qualitative governance criteria, as well as reviewing practices.

There are many factors to consider and a few examples are cited below from guidelines that cover the broad scope.

• Everence evaluates equity plans using the following framework: “Rightly, the cost of these plans must be in line with the anticipated benefits to shareholders. Clearly, reasonable limits must be set on dilution as well as administrative authority. In addition, shareholders must consider the necessity of the various pay programs and examine the appropriateness of award types. Consequently, the pros and cons of these proposals necessitate a case-by-case evaluation. Factors that increase the cost (or have the potential to increase the cost) of plans to shareholders include: excessive dilution, options awarded at below-market discounts, permissive policies on pyramiding, restricted stock giveaways that reward tenure rather than results, sales of shares on concessionary terms, blank-check authority for administering committees, option repricing or option replacements, accelerated vesting of awards in the event of defined changes in corporate control, stand-alone stock appreciation rights, loans or other forms of assistance, or evidence of improvident award policies. Positive plan features that can offset costly features include: plans with modest dilution potential (i.e., appreciably below double-digit levels), bars to pyramiding and related safeguards for investor interests. Also favorable are performance programs with a duration of two or more years, bonus schemes that pay off in non-dilutive, fully deductible cash, 401K and other thrift or profit sharing plans, and tax-favored employee stock purchase plans. In general, we believe that stock plans should afford incentives, not sure-fire, risk-free rewards.” (Please see their full guidelines to understand how the evaluation is implemented).

• NEI’s guidelines also explain some of the issues related to equity plans: “We believe longer-term equity-based incentive awards should also be predominantly performance-based rather than time-based. We do not consider stock options to be performance-based. Unless they are tied to an appropriate range of performance conditions, options may simply be rewarding a rise in stock price during a bull market that has nothing to do with executive performance, while in bear markets both inferior and exceptional performance on key long-term value drivers may lead to the same result: no reward. In addition, options can greatly increase the inherent complexity of executive compensation. We are encouraged to see a market trend generally toward reduction in the use of options, and at some companies, their complete elimination from compensation frameworks.”

In general, the guidelines we reviewed prefer performance-based equity grants with the longest vesting schedule and rigorous holding requirements. Shorter vesting horizons encourage short-termism and weaken alignment with durable value creation. Extending vesting and holding periods helps focus executives on systemic risk issues.

Some voting guidelines are explicit on the time ranges.

• Castlefield  notes that, “Remuneration schemes should require executives to hold shares in the company for at least 5 years in order to align executives with the interests of all shareholders. If a remuneration report does not require this, it should be voted AGAINST.”

Beyond traditional governance metrics, some investors emphasize the distributional impact of equity compensation. ICCR’s particular interest in this analysis is how equity awards have contributed to inequality and voting considerations that religious investors may wish to consider in addition to the broader issues above. One fairly simple measure to evaluate is how broadly awards have been granted, both among the five named executive officers and through the company as a whole.

• An anonymous guideline suggests, “The voting fiduciary should consider whether a proposed plan generally is available to other managers and employees in the company, or is targeted narrowly to the top executives of the company. Any plan that creates or exacerbates disparities in the workplace may adversely affect employee productivity and morale.” The fund recommends that “The voting fiduciary should generally oppose plans if a significant proportion (e.g. more than 10%) of option shares granted the previous year were issued to the top five executives.”

• NorthStar’s  guidelines note that “unless equivalent equity-based compensation plans are offered to each non-executive employee as well” it will vote against/withhold.

Quantum of pay may also influence votes on equity plans. Both Domini and Friends Fiduciary include guideline language, “Generally vote against unreasonable compensation packages. Vote against CEO Equity Plans if CEO compensation exceeds $10 million per year.”

Conclusion

While many workers face stagnant wages, an affordability crisis, and precarious working conditions, often relying on public benefits such as SNAP and Medicaid to meet their basic needs, CEO pay has risen over 1000% in the last fifty years. For those that approach the capital markets from a faith and values perspective, these pay inequities challenge the moral and ethical codes of fairness. Grounded in this vision, ICCR members have long affirmed that corporations and investors have a responsibility to advance dignity and justice for all working people and to contribute to a more just and sustainable economy.

The examples from ICCR members and peers highlighted in this report demonstrate that through investor expectations, voting policies, and engagement strategies around executive compensation and systemic risk, the investor community has the power to drive outcomes that are more equitable.

Ultimately, addressing excessive executive compensation and income inequality will require investors to take a closer and more disciplined look at the policies that guide their say-on-pay votes. That means scrutinizing not just the overall size of pay packages, but how companies set peer benchmarks, design compensation plans, select performance metrics, and justify one-time awards.

At a time when investors have continued to support the vast majority of executive pay packages, this report makes clear that a more critical and consistent approach is needed. By strengthening investor policies that address these areas, investors can have a hand in reining in excessive compensation and ensure that pay practices better reflect accountability, fairness, and long-term value creation, and affirm that how companies reward leadership is not just a financial decision, but a moral one.

The complete publication, including footnotes, is available here.