by Jeannemarie O’Brien, Michael J. Schobel, Erica E. Aho, and Alison E. Beskin
Left to proper: Jeannemarie O’Brien, Michael J. Schobel, Erica E. Aho, and Alison E. Beskin (photographs courtesy of Wachtell, Lipton, Rosen & Katz)
With 2025’s deal momentum anticipated to proceed into 2026, attracting and retaining key expertise stays important amidst financial and political uncertainty. Macroeconomic indicators are combined, with steady financial development and easing rates of interest coupled with above-target inflation and a slowing labor market. On the similar time, the brand new U.S. presidential administration has ushered in large-scale coverage shifts. Holding executives and workers engaged is crucial to navigating the present panorama. We evaluate under a number of the authorized updates and compensation traits that will form compensation selections in 2026 and past.
Growing Scrutiny of Proxy Advisory Companies. The most important proxy advisory corporations ISS and Glass Lewis, which have lengthy had a distinguished voice in shaping compensation selections at public firms, at the moment are dealing with heightened regulatory and stakeholder scrutiny that will impression their function over time. On December 11, 2025, President Trump signed an government order directing the Securities and Alternate Fee (SEC) to extend its oversight of proxy advisors. The order instructed the SEC to, amongst different issues, assess whether or not to require proxy advisors to register as funding advisors and think about whether or not to require proxy advisors to supply elevated transparency on their suggestions, methodology and conflicts of curiosity, particularly concerning variety, fairness and inclusion (DEI) and environmental, social and governance (ESG) components. The order additionally directs the Federal Commerce Fee (FTC) to evaluate state antitrust investigations into proxy advisors and decide if there’s a possible hyperlink to violations of federal antitrust regulation. Additional, the order directs the Division of Labor to strengthen the fiduciary requirements of pension and retirement plans, which might consequence within the proxy advisors being handled as ERISA fiduciaries. It stays to be seen how this elevated scrutiny will impression the proxy advisors, however Glass Lewis introduced late final 12 months that it’s going to start providing extra custom-made voting suggestions (enabled partly by AI) starting in 2027. We may even see an acceleration in the usage of options to standardized proxy advisor frameworks to tell voting insurance policies, similar to growth of inside tips or creation of in-house, AI‑pushed instruments. Though ISS and Glass Lewis are prone to stay extremely influential within the 2026 proxy season, if there’s large-scale motion away from standardized voting frameworks sooner or later, firms might want to think about the best way to adequately conduct investor outreach to protect in opposition to unexpected voting outcomes, particularly on delicate compensation issues.
Stress-Testing Restrictive Covenants. Whereas the FTC formally deserted its proposed noncompete ban in September 2025, the FTC continues to pursue focused enforcement actions with respect to noncompete covenants that it views as unlawfully anticompetitive. In the meantime, noncompete covenants are more and more extra regulated on the state stage, with many states adopting noncompete statutes in recent times. Some state statutes flatly prohibit noncompete covenants within the employment context (together with California, Minnesota, North Dakota and Oklahoma, though in sure instances, sale of enterprise or related exceptions could apply), whereas others prescribe assessments for validity and enforceability, together with reasonableness as to period and geographic scope, required consideration worth or earnings thresholds. Even within the absence of a statute, state courts are making use of rising scrutiny in analyzing restrictive covenants pursuant to relevant case regulation, together with in jurisdictions similar to Delaware that traditionally have been considered as supportive of defending an employer’s proper to implement restrictive covenants. Given the lowering certainty that restrictive covenants can be upheld, firms ought to periodically evaluate the scope and wording of their current restrictive covenants to maximise enforceability within the evolving authorized panorama and also needs to think about different applicable instruments to guard their enterprise pursuits, similar to confidentiality restrictions and enhanced worker retention efforts.
SEC Roundtable on Government Compensation. On June 26, 2025, the SEC hosted a roundtable on government compensation, throughout which Chairman Paul Atkins referred to the present government compensation disclosure regime as a “Frankenstein patchwork of guidelines.” Specifically, latest additions to the laws, together with the Pay Versus Efficiency guidelines, could also be considered as a “regulatory tax” on public firms (within the phrases of Commissioner Hester Peirce) somewhat than a profit to buyers. Chairman Atkins signaled that the principles could also be amended to reinforce transparency and to scale back complexity for buyers. The SEC has not given any additional indication as to what steps it could take, with commenters divided on particular reforms and a number of the most onerous and controversial disclosure guidelines (similar to Pay Versus Efficiency and Pay Ratio) being a product of the Dodd-Frank Act, somewhat than SEC rulemaking alone. Ultimate rulemaking is unlikely earlier than the 2027 proxy season, however 2026 could deliver proposals for brand spanking new guidelines or adjustments to, or rescission of, current necessities.
Insider Reporting Obligations for FPIs. Efficient March 18, 2026, administrators and officers of international personal issuers (FPIs) will, for the primary time, be topic to the reporting necessities of Part 16(a) of the Securities Alternate Act of 1934. This features a requirement to file Types 3, 4 and 5 with the SEC. Nonetheless, administrators and officers of FPIs won’t be topic to the short-swing revenue disgorgement provisions of Part 16(b). FPIs might want to rapidly put together for compliance with these new necessities, together with by making certain administrators and officers have present submitting codes for the SEC’s EDGAR system to allow submitting of possession experiences starting March 18, 2026.
Early-Stage Transaction Planning. At a time of elevated volatility within the M&A market, offers have typically been transferring rapidly from the preliminary engagement of the events to the signing of definitive agreements. Given the compressed timelines, firms ought to take early steps to organize for the potential for a transaction. Specifically, throughout the preliminary phases of the method, the goal firm ought to work with authorized counsel to evaluate and assess the scope and phrases of any current government change-in-control preparations, the phrases of excellent fairness awards governing their therapy in a company transaction (together with the therapy of any efficiency metrics), and the retention and severance wants for the broad-based worker inhabitants, amongst different key employee-related objects. As well as, Part 409A implications needs to be analyzed, and corporations ought to prioritize participating an accounting agency and authorized counsel to organize preliminary Part 280G calculations to evaluate the potential excise tax publicity and lack of deductibility for change-in-control compensation. In our expertise, a excessive diploma of preparation within the early phases of the method, previous to the signing dash, results in higher outcomes, with events agreeing to applicable phrases that facilitate the transaction by retaining and incentivizing workers.
Unsure Interim Durations. In distinction to the accelerated deal signing course of frequent in the present day, interim intervals have change into tougher to foretell. The interim interval is inherently a time of uncertainty for goal firm workers, and the longer the interval extends, the more difficult it may be to retain key workers. Accordingly, in circumstances the place the interim interval could also be prolonged, particularly if it might exceed 12 months, firms needs to be particularly considerate and artistic in designing applicable retention incentives. For instance, firms could think about granting transaction-related retention with partial cost previous to closing.
Government Transitions in M&A. Company transactions inherently contain planning for, and the implementation of, a number of government transitions. However as transactions change into more and more advanced, government transition preparations change into extra bespoke to satisfy the circumstances. For instance, the chief government officer of one of many merger events could assume the function of government chair of the mixed firm for an outlined time period following the closing, or could function non-executive chair, as a non-employee director, or in an advisory function, whether or not as a non-officer worker or as a advisor. The scope of the function and the corresponding compensation should be tailor-made to the events’ wants, with consideration given to company governance impression, therapy of change-in-control compensation, Part 280G and Part 409A tax implications for the manager and for the mixed firm, and the impact of the transition on retention of different key executives. Cautious thought and coordination among the many many various stakeholders, with the recommendation of exterior counsel, is crucial to steadiness the totally different overlapping concerns and attain an appropriate end result for the transitioning government and the merger events.
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An organization’s compensation framework needs to be recurrently reviewed given the advanced authorized, accounting and governance concerns that go into designing a compensation program. Firms in any respect phases of the company life cycle profit from robust government management and dedicated personnel. By specializing in attracting and retaining key expertise, firms can be finest positioned to ship long-term worth for his or her shareholders.
Jeannemarie O’Brien, Michael J. Schobel, and Erica E. Aho are Companions, and Alison E. Beskin is an Affiliate at Wachtell, Lipton, Rosen & Katz. The submit first appeared as a consumer alert for the agency.
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