It really varies, but I believe generally on the knees. Given the lack of objective standards for skills mastery (i.e., depth changes, maintenance of trim, etc.), you cannot expect the average IDC candidate to have GUE fundies rec pass skills. You simply are not going to generate the number of instructors required by the industry each year.
Let's not forget, the vast majority of people interested in diving don't give a F about buoyancy, trim, proper finning. They just want to go underwater and look at some pretty fish. They really don't care if they kick the coral a few times.
My PADI IE was in December 2015, almost 3 years ago. My IDC was on the knees. My IE was on the knees. I really don't think that one can consider a skill mastered when it is performed on the knees. I've heard of a few IE's being performed neutrally buoyant, but those are the exception (but awesome nonetheless). I've heard of some IE's where candidates were forced on the knees. In December, I can hang out and see in the open water how PADI conducts their IEs (they conduct 2 per year).
And it isn't just PADI, but virtually every mainstream agency. SSI has a stronger emphasis on neutral buoyancy, but they still don't require all skills to be performed off the bottom and trim. They would like it. AFAIK, of the mainstream agencies, it is only RAID, whom as I've said before, I hope grows by leaps and bounds for the sole reason that they have objective standards (mentioned previously) and they have a rigorous crossover process.
Honestly, I don't expect any of the larger mainstream agencies to require that all instructors teach OW neutrally buoyant, because many of their instructors cannot do it themselves. The number of instructors and DMs generated each year would decrease. The last OW course I taught, there was an instructor working with an DMC, all on their knees, in sharp contrast to my students all neutrally buoyant. My DMs and my students alike thought it was an open water student.
How messed up is that?
Let's be serious for a minute. Are all CD's/IT's capable of performing skills neutrally buoyant, trim, and just as fluid, comfortable, and repeatable as they would on the knees? We all know this isn't the case. Do we expect the mainstream agencies to tell their instructors, CD's/IT's, DM's, to ship up or ship out? That's a lot of money in terms of membership dues, and let's not forget that this is a business first. Same with the IEs. Lower pass rates, lower membership dues being paid.
At least with RAID, GUE, UTD, and ISE you can be guaranteed that their open water courses are going to be performed properly and their instructor can teach that way. For those agencies, the credence that "it is the instructor, not the agency" doesn't apply as much as it does for everyone else.