Special Equity Awards: Making the Case to Shareholders

A special equity award reflects a board’s judgment that circumstances warrant a separate opportunity to address a particular business need that the regular compensation program cannot adequately address. This exercise of judgment requires the board to demonstrate that the decision was well considered and in shareholders’ interests.

The 2026 proxy season showed why that matters. Say on pay results were strong across the market, yet one time awards were a key factor among companies that received weak or failed support. This memorandum summarizes what proxy advisors and investors expect of these awards and sets out a five step roadmap for compensation committees and management teams, from initial design through the say on pay vote.

Special Awards Stood Out in a Strong Say on Pay Year

Say on pay support in 2026 was the strongest in years. Median Russell 3000 support rose to 95.4%, and the failure rate fell to an all time low of 0.8%. Yet according to ISS STOXX, nearly half of the Russell 3000 companies that failed or received less than 70% support had granted a one time award to a named executive officer (NEO). These awards are also becoming more common and larger. ISS-Corporate reports that 27.3% of Russell 3000 companies granted a one time award to an NEO in fiscal 2025, up from 25.1% in fiscal 2024, and the share of awards above $20 million more than doubled.

When nearly every company clears the bar, a special award that is not carefully designed and clearly explained can make an otherwise well regarded pay program the outlier.

Sources. ISS STOXX, 2026 U.S. Proxy Season Review. Compensation; ISS-Corporate, 2026 U.S. Compensation Post Season Review. Strong Investor Support Despite Resurgence of One Time Grants.

Characteristics of a Defensible Award

Special awards typically address one of the four situations below.

• A multiyear strategic plan whose milestones do not fit a standard three year performance cycle.
• Retention of a key executive during a succession, turnaround, or other period when a departure would be especially disruptive.
• Competitive talent pressure for executives whose skills are in unusually high demand.
• Replacement of forfeited equity for a new hire. Proxy advisors and investors generally view make whole awards more favorably, provided the details and basis for the award are disclosed.

Awards that withstand scrutiny pass a straightforward test, namely that the board can explain concisely why the award was made to this executive, at this amount, and at this time. Boards should also consider how that rationale will age. An award meant to support a leadership transition is easy to explain if the transition occurs as planned and harder if it does not. Repeat awards warrant particular caution, as ISS expects one time awards to be isolated and nonroutine.

Proxy Advisor and Investor Expectations

ISS and Glass Lewis review special awards case by case, and their expectations largely overlap, as follows.

• A compelling rationale. Why the award was necessary, why existing awards were insufficient, how its size and structure were determined, and how it serves shareholders’ interests.
• Performance based design. Predominantly performance based vesting, with meaningful future performance and service requirements. ISS’s 2026 acceptance of long horizon time based equity applies to regular programs, not one time awards.
• Reasonable and nonrecurring. Limits on vesting upon termination, an explanation of any effect on regular grants, and, for front loaded awards, a firm commitment not to make additional awards during the covered period. ISS generally does not support front loaded grants covering more than four years.
• No make up grants. Awards that compensate for missed goals, through lowered or waived targets or replacement grants, are viewed as problematic.

In addition to an adverse say on pay recommendation, significant or egregious compensation concerns may also have implications for compensation committee members. Glass Lewis specifically identifies problematic megagrants as a potential basis for recommending against the compensation committee chair.

Large institutional investors apply similar standards. BlackRock supported approximately 90% of compensation related management proposals in the Americas but continued to oppose U.S. programs that included large outside of program awards without a strong strategic rationale.

Source. BlackRock Investment Stewardship, 2026 Global Voting Spotlight (July 1, 2025 through June 30, 2026 proxy year).

A Roadmap for Compensation Committees and Management Teams

The roadmap follows a special award through five steps, as follows.

1. Test the Award Before Approval
2. Engage Shareholders Early
3. Explain the Award at Grant
4. Present the Rationale in the Proxy
5. Set Expectations and Prepare to Respond

Meeting these expectations depends as much on sequencing as on design. The roadmap above follows a special award from initial design through the say on pay vote.

Step 1. Test the Award Before Approval

Before approving the award, the compensation committee should do the following.

• Confirm the need. Determine whether an increased regular grant or redesigned long term incentive program could achieve the same objective with less of the scrutiny associated with a special award.
• Stress test the design. Measure the award against the expectations above; model payouts, including upside from share price appreciation and change in control treatment; consider whether a front loaded structure would limit the committee’s flexibility to adjust future compensation; assess how the award will appear in the Summary Compensation Table and affect multiyear proxy advisor pay for performance assessments; and treat award size as a distinct risk.
• Draft early and align the message. Drafting disclosure alongside the design can help expose any weaknesses in the award. Management, the committee, counsel, investor relations, and the compensation consultant should deliver a consistent message and decide early whether to file a Form 8-K.

Step 2. Engage Shareholders Early

Where timing permits, engaging major shareholders before the award is finalized can provide directional feedback on how investors are likely to view the award’s rationale, size, and design while there is still flexibility to respond. Because a planned award, particularly a large CEO grant, could constitute material nonpublic information, companies should work with counsel to structure pre announcement engagement with Regulation FD in mind, including whether discussions should remain at the level of general design principles. Preparation starts with knowing the shareholder base, namely significant holders, their prior say on pay votes, the voting policies they apply, and who makes their voting decisions. The purpose is to listen, not to seek assent, and the decision remains the board’s.

Engagement after the award is announced but before the proxy statement is filed is also valuable and, for calendar year companies, often occurs from fall through early winter. It gives the company an opportunity to provide context for the award and to learn what additional proxy disclosure investors would find helpful. Outreach should include shareholders that supported say on pay as well as those that opposed it, with a compensation committee member joining where discussion turns to the board’s judgment. Some passive investors may limit feedback to preserve their Schedule 13G eligibility, and meetings with the proxy advisors following shareholder engagement can provide an opportunity to offer additional context.

Step 3. Explain the Award at Grant

The Form 8-K is often the first public explanation of the award. Item 5.02(e) generally requires a filing within four business days of a material grant or award to an NEO, but an instruction excludes grants materially consistent with the previously disclosed terms of an existing plan or arrangement. Whether a special award falls within that instruction should be determined with counsel. Although Item 5.02(e) requires only a brief description of the arrangement and amounts payable, a company can go further by explaining why the committee made the award, providing an early version of the rationale that will later appear in the proxy statement.

Even where no filing is required, a voluntary Form 8-K allows the company to explain the award’s rationale, performance conditions, and nonrecurring nature at the outset and can facilitate informed shareholder discussions. Because it will serve as a reference point for the CD&A, the Form 8-K and CD&A should be consistent, and companies should consider filing the award agreement with the Form 8-K rather than with the next periodic report.

Step 4. Present the Rationale in the Proxy

The CD&A should present the complete rationale, preferably in a standalone discussion. ISS relies primarily on the proxy statement, and information not fully disclosed there generally will not be considered as mitigating.

Effective disclosure leads with the business rationale and design and addresses award values once that context is established. Companies should consider covering the following.

• Rationale and strategy. The circumstances that prompted the award, why the regular program could not address them, and how the award supports long term value creation for shareholders.
• Recipients and size. The basis for including each recipient, how award size was determined, and total target and annualized value for multiyear awards.
• Performance design and goal rigor. The metrics selected and the reasons for their selection; threshold, target, and maximum payouts; the rigor of the goals; and, where relevant, the relationship between award payouts and value delivered to shareholders.
• Vesting and exit terms. Performance, service, and post vesting holding periods, and termination and change in control treatment, including limits on accelerated vesting.
• Effect on the regular program and safeguards. Any reduction in, or suspension of, annual grants, commitments not to grant further special awards, any prior special awards to the recipient, and clawback, ownership, and payout cap protections.
• Engagement and ongoing reporting. The shareholder outreach conducted and feedback received, and, for multiyear awards, progress updates in subsequent proxy statements.

Step 5. Set Expectations and Prepare to Respond

Well crafted disclosure cannot fully offset a misalignment between pay and performance. A large special award inflates reported pay in the grant year. Where that coincides with weak shareholder returns, an adverse say on pay recommendation remains a real possibility. The goal of disclosure is therefore not necessarily to win a favorable recommendation, but to give shareholders, many of whom apply their own voting policies, enough information to evaluate the award on its merits.

Committees should also plan their response in advance. Any written response to a published ISS report that is intended to influence shareholders generally must be filed publicly, and filings made fewer than five business days before the meeting generally cannot change a recommendation. If say on pay support falls below 80% (Glass Lewis) or 70% (ISS), the next proxy statement should address shareholder engagement, the concerns raised and the company’s response. Credible responses tend to be forward looking, such as a commitment not to grant special awards for a defined period. Under current proxy advisor methodologies, a one time award can also affect pay for performance assessments over a multiyear period.

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