You spent a lot of time preparing proxy statements, refining compensation disclosures, and presenting the clearest rationale for shareholder support, but in the end, ISS or Glass Lewis issued a “no” recommendation.
This isn't what companies want, but it also doesn't mean they'll lose votes. On average, negative recommendations from ISS negatively impact support by about 20%, but most still pass. Companies that receive an adverse recommendation should develop a practical response plan to assess the issues raised, confirm their accuracy, correct misconceptions where necessary, and communicate clearly with shareholders to reduce the risk of an adverse vote outcome.
Below are clear steps to follow to effectively respond to a proxy advisor's adverse recommendation before all voting is complete.
Start with the response team
The first step is to establish a small group that can convene as soon as the proxy advisor's report is published. For most companies, that team includes representatives from total compensation and human resources, legal, investor relations, the company's compensation consultant, and outside counsel. In many cases, the chair of the remuneration committee will also need to be involved, and depending on the company's shareholder base and the level of involvement required, representing counsel may also be helpful.
Most importantly, teams can be pre-established or quickly assembled and can act quickly. Assign someone to clearly own each of these action items.
- Reviewing Proxy Advisor Reports
- Coordination of shareholder outreach
- Inform the remuneration committee as the situation develops
Review the report carefully before deciding how to respond
Once the team is assembled, the next priority is to carefully review the ISS or Glass Lewis report to determine whether its recommendations are based on factual inaccuracies, misstatements, or omissions that may have affected the analysis.
It is also important to distinguish between factual errors and differences in judgment. In some cases, the report may reflect different interpretations of pay design, pay amounts, exercise of discretion, retention awards, or the committee's rationale for a particular decision. Such situations require a slightly different response than reports containing obvious factual errors.
Framing the problem correctly the first time helps companies determine which tools are most appropriate and where to focus their efforts.
Address any real inaccuracies immediately
If the response team identifies obvious inaccuracies or omissions that contributed to the voting recommendation, it may be appropriate to act quickly to correct the record. This includes working directly with ISS or Glass Lewis to update the analysis so that a revised report and, in some cases, recommendations can be issued.
Supplemental solicitation materials may be appropriate
Some companies may find it appropriate to address disagreements or disagreements publicly through supplemental proxy materials such as DEFA14A. This can be an effective way to respectfully address the proxy advisor's conclusions and provide additional context that may not have been fully considered. These materials allow the company to more clearly explain its reasons, highlight the strengths of its compensation program, and create a public record that addresses concerns raised by ISS or Glass Lewis more comprehensively than shareholder outreach alone.
In all cases, the tone of your response is important. Even if a company strongly disagrees with its proxy advisor, a cautious, fact-based approach is usually most effective. Ultimately, the key question is whether a broader public explanation would help support the company's position.
Move quickly to shareholder outreach
Regardless of whether a company files supplemental proxy materials, active shareholder engagement should be central to the response plan. Even after an adverse recommendation is made, and before a vote is taken, there is still an opportunity to explain the rationale for the compensation program, directly address investor concerns, and strengthen the company's broader performance-related compensation philosophy.
Work quickly with investor relations (and proxy counsel, if necessary) to identify preferred shareholders to support, particularly those known to closely follow ISS or Glass Lewis recommendations.
These conversations tend to be most effective when they are focused and direct. Shareholders generally do not have to rebut a proxy advisory firm's report line by line. They typically ask for a clear explanation of the company's remuneration philosophy, the reasoning behind the scrutinized decisions, and how the remuneration committee considered the business context and shareholder interests in designing the program.
Importantly, shareholders want to hear directly from the remuneration committee, so we recommend including the committee chair at the general meeting, along with representatives from legal, human resources, and investor relations. Compensation consultants and outside lawyers typically do not participate.
Closely track voting support
Once advocacy begins, companies should monitor voting support as results are announced ahead of the annual general meeting. Early voting results provide useful insight into which holders have already voted, where support levels are trending, whether additional engagement is worthwhile, and more.
The response team should provide regular updates to the compensation committee on voting patterns, shareholder feedback, and recurring concerns that have come up in conversations with investors. Even if support seems weaker than expected, there may still be time to provide additional assistance or improve your company's messaging before the meeting.
If support is weak, prepare for off-season signings.
If the final payroll outcome falls below the company's desired level, the response plan should extend beyond the annual general meeting. Unfavorable results often indicate that broader shareholder outreach is needed and that companies should consider whether changes to their compensation design, governance practices, or disclosures are appropriate before the next compensation cycle.
In these cases, we recommend considering a stronger shareholder support program, which typically starts in the third or fourth quarter. This process helps the company better understand investor concerns and demonstrate in next year's proxy statement that shareholder feedback was taken seriously and thoughtfully addressed.
practical timeline
A possible actionable response timeline after the report is as follows:
| when | action items |
| within 24 hours | Convene a response team to carefully review the report, identify the key concerns raised, and determine whether there appear to be factual inaccuracies or significant contextual issues. |
| Within 48-72 hours | Decide whether to engage directly with ISS or Glass Lewis, whether supplemental solicitation materials such as DEFA14A are appropriate, and which shareholders should be prioritized for outreach. |
| Next 7-10 days | Conduct targeted shareholder engagement, closely monitor incoming votes, and provide regular updates to compensation committees. |
| leading up to the meeting | Continue to reach out to key abstainers or undecided holders and refine your message as necessary based on investor feedback to move closer to your voting predictions. |
A “no” recommendation is temporary, not a result.
Regardless of one's view on the importance of proxy advisory firms, an adverse recommendation from ISS or Glass Lewis is clearly an important moment in the annual compensation calendar, but that does not mean companies are without options. With a well-structured response plan, companies will be in a stronger position to address inaccuracies where necessary, explain their position where there are legitimate differences of judgment, proactively engage with shareholders, and effectively manage payment outcomes.
About Perlmeyer
Pearl Meyer is a leading advisor to boards and senior executives who helps organizations build, develop and reward high-performing leadership teams that drive long-term success. Our strategy-driven compensation and leadership consulting services serve as a powerful catalyst for value creation and competitive advantage by addressing the critical link between people and performance. For more information about Pearlmeyer, please visit https://pearlmeyer.com/.
