As executive pay practices face growing scrutiny from investors, regulators and employees alike, compensation committees find themselves balancing governance, performance and talent retention in an increasingly volatile environment. During a recent Directors & Boards webinar, industry leaders explored how boards are adapting and where the future of pay practices may be headed.
Governance Versus Retention
According to Robin A. Ferracone, founder and CEO of Farient Advisors and compensation committee chair of The Woodlands Financial Group, “One of the biggest challenges compensation committees face is the collision course between governance standards and retaining great people. You want to do what you promise shareholders, but then something unique comes along and you think you have to give a special award. Proxy advisors and investors don’t like those specials, but sometimes they’re necessary.”
Linking Compensation to Succession
Ferracone and her fellow guest, Lakecia Gunter, director and member of the compensation and governance committee of IDEX Corporation, agreed that succession planning and pay are increasingly intertwined. “Turnover of top talent has accelerated,” said Ferracone. “Committees feel they need to get on the front foot, not only guarding against unwanted departures, but also ensuring compensation supports succession planning.”
Gunter said, “It’s not just about the CEO and direct reports. Comp committees are also looking at minus-one and minus-two levels, because that’s where the bench strength lies. You have to make sure you’re developing and compensating those leaders or you risk being in constant rebuilding mode.”
Expanding Scorecards
Traditional performance metrics are no longer enough. “CEO scorecards are expanding beyond revenue and total shareholder return,” said Gunter. “Comp committees are now looking at a variety of metrics, including ESG, digital transformation, AI adoption, cybersecurity, talent and employee well-being. Shareholders, regulators and employees are holding us accountable for more than just the numbers.”
Ferracone added that, while profitable growth remains the ultimate goal, setting the right targets is critical. “If goals are too low, they’re a cakewalk. If they’re too high, they’re demoralizing. The challenge is setting goals that are both credible and competitive in the market.”
The Risks of Overcorrection
In response to rising retention pressures, some boards are making costly mistakes. “I’ve seen companies overdo retention bonuses,” said Ferracone. “A new CEO doesn’t always want to retain the same people as the former CEO. As a result, you can get caught paying both retention and severance awards to the same individual. The better ‘insurance policy’ is a strong bench, not over-reliance on one individual.”
Gunter agreed, framing it as a matter of effective talent risk management. For compensation committees, this means going beyond pay design to ensure the organization is building a resilient leadership pipeline and protecting its most critical asset: its people.
Simplification and Transparency
Gunter underscored the importance of clarity. “If compensation plans are so complicated the leaders themselves can’t explain them, you’ve got a problem,” she said.
Ferracone echoed this theme, pointing to recent industry conversations. “The more complicated the plan, the harder it is to prove alignment with performance. Simplicity resonates both internally and externally.”
Looking Ahead
Best practices center on foresight, education and adaptability. Gunter advised boards to “design pay programs with the company you want five years from now in mind. Great committees don’t just look in the rear-view mirror.”
Ferracone emphasized the growing role of analytics, saying “Predictive modeling will be essential. Committees that harness data on succession, turnover impacts and pay-performance alignment will be better positioned to make strategic compensation decisions.” As companies continue navigating shifting expectations, compensation committees must continue to evolve from narrow overseers of pay into strategic drivers of long-term value creation.