Compensation Corner: January Insights

Bank Compensation Corner: January Insights

As we kick off 2026, compensation leaders in the banking sector are navigating continued proxy-season planning, emerging regulatory developments, and ongoing discussions about long-term incentive design. In this month’s installment of Bank Compensation Corner, we break down insights from recent commentary on executive disclosure reminders, federal policy action targeting proxy advisory firms, and whether performance share units (PSUs) deliver on expectations.

Proxy Season: Practical Reminders for Executive Compensation Disclosures

1. Proxy Season Readiness: Executive Compensation Disclosure Insights

With the 2026 proxy season on the horizon, there are several timely reminders for compensation committees and HR teams preparing executive compensation disclosures:

Pay-versus-Performance (PVP): Companies subject to pay-versus-performance disclosures are now providing a full five years of data under Item 402(v) of Regulation S-K. Even though there is ongoing debate about the future of PVP rules, companies should be ready to include these disclosures in their 2026 proxy statements and stay aligned with any phased-in requirements.

CEO Pay Ratio: Most companies are familiar with CEO pay ratio disclosures, but those that have undergone significant workforce changes may need to reassess their median employee determination sooner than anticipated.

Pay Adjustments and Narrative Quality: Any notable adjustments to executive pay last year, whether increases, discretionary awards, or new incentive metrics, should be clearly explained in the CD&A with a rationale that ties compensation decisions to performance outcomes and governance oversight.

Equity Plan Preparedness: Now is also the time to model equity plan overhang and ISS scorecard implications in advance of equity plan proposals. Early engagement with consultants can smooth plan approval conversations with investors.

Insights into AI and Compensation: As artificial intelligence becomes increasingly strategic, compensation committees should think ahead about how AI-related roles and metrics might be incorporated and be prepared to justify any performance targets tied to these evolving priorities.

Federal Policy Spotlight: White House Executive Order on Proxy Advisory Firms

2. Regulatory Spotlight: Increased Scrutiny of Proxy Advisors

In late 2025, the White House issued an executive order aimed squarely at increasing oversight of proxy advisory firms, especially Institutional Shareholder Services (ISS) and Glass Lewis.

The order highlights concerns that these firms, which together dominate the proxy advisory market, exert significant influence over corporate governance matters, including executive compensation, board composition, and shareholder proposals. It asserts that their influence can extend into socially oriented agendas like diversity, equity and inclusion (DEI) and environmental, social, and governance (ESG) factors.

Directives for Federal Agencies:

• The Securities and Exchange Commission (SEC) is directed to reconsider or rescind rules and guidance relating to proxy advisors, including those touching on DEI and ESG, and to assess whether proxy advisors should be required to register as investment advisers.

• Increased transparency around proxy advisory methodologies, conflicts of interest, and voting recommendations is a key focus.

• The order also tasks the Federal Trade Commission (FTC) and Department of Labor (DOL) with reviewing potential antitrust issues and fiduciary duty concerns tied to proxy advisory practices.

For compensation committees, this shift underscores the importance of clear and robust executive compensation disclosures as agency rulemaking unfolds and the proxy advisory landscape evolves.

Are PSUs Still Effective?

3. Are PSUs Still Effective?

Performance share units (PSUs) are now nearly ubiquitous at large public companies, but research on their effectiveness is mixed. Recent studies and surveys examined whether PSUs actually enhance alignment between pay and long-term performance:

Conflicting Evidence:

• Some research finds that companies using PSUs show stronger alignment of realizable pay with total shareholder return.

• Other studies indicate that heavy reliance on PSUs can correlate with weaker shareholder returns or underperformance relative to peers without PSUs.

Investor Views Vary: Institutional investors express divergent preferences for equity mix, with some favoring PSUs while others prefer combinations of PSUs and long-vesting time-based RSUs.

Practical Takeaways: Rather than adopting PSUs simply because they are common practice, compensation committees should consider whether PSUs meaningfully reinforce strategy and shareholder value, and whether alternative designs (longer vesting, options, tailored blends) might better support long-term goals.

Final Thoughts

As the 2026 proxy season gets underway, compensation leaders in banking should sharpen their focus on disclosure quality, keep an eye on shifting regulatory dynamics around proxy advisory oversight, and thoughtfully evaluate long-term incentive designs. Advance preparation and clear narrative alignment with performance outcomes will be critical to navigating this year’s governance challenges and opportunities.