Executive Compensation in an Age of Disruption: Simpler, Smarter & Sharper

2024 felt like a return to stability for Compensation Committees—at least on the surface. After years of pandemic-era disruption, labor market upheaval, and pressure around talent management, Say on Pay approvals reached record highs, labor markets cooled, and boards continued operating under steady scrutiny. It felt like the continuation of long-running trends.

But beneath this calm, the ground was already shifting.

The Supreme Court’s overturning of the Chevron Doctrine redefined the role of federal agencies. AI advancements hinted at massive, long-term labor market disruption. ESG investment faced a politicized backlash—some say a rebrand, others a reckoning. Now, just three months into 2025, it’s clear we are squarely in a new era marked by technological acceleration and persistent economic and geopolitical uncertainty.

Boards are being asked to strike a delicate balance between agility and resilience—ready to pivot but also able to endure. Compensation strategies must reflect that balance. In 2025, the most effective Compensation Committees will focus on three key priorities:

1. Building flexibility into pay programs to capture emerging opportunities
2. Prioritizing resilience and risk management in incentive design
3. Maintaining a sharp focus on accountability and sustainable value creation

Here’s what I predict comes next:

(1) Resilience Takes Center Stage Amid Turmoil

Boards are doubling down on executives who can navigate volatility—not just chase growth. Incentive plans are pivoting toward resilience and away from precision. The goal-setting process, even early in 2025, already feels strained. Committees are increasingly frustrated with the difficulty of setting meaningful performance targets in a world of constant disruption. Many are overhauling their adjustment frameworks—or simply asking: “What are we even measuring anymore?”

Semler Brossy explored these dynamics in depth - how companies are adjusting frameworks, rethinking metrics, and navigating planning fatigue in real-time. Article. But even with all the planning, at a certain point, rigid metrics stop adding value and start becoming a distraction.

(2) Winning with Simplicity

In an unpredictable environment, simplicity is comforting and clarifying. Compensation designs that shed complexity will be easier for participants to accept as credible and motivating: fewer metrics, broader goals, less precision, and more focus on actual results and value creation. The winners will be the companies that focus their energy on finding opportunities in uncertainty and driving results—rather than debating how to adjust incentives to ensure a payout.

I expect companies to use their compensation “real estate” more wisely. Instead of cramming in three to five performance measures and a whole scorecard of strategic measures into one pay vehicle, more will concentrate on one or two metrics that reflect enduring business priorities. Less noise, more signal.

Relative total shareholder return (TSR) may even see a resurgence. Even though rTSR is a challenging measure, it removes companies from the goal-setting business and asks the simple question, “Did you beat the market?” which can be appealing in moments of uncertainty.

(3) Cracks in the PSU Orthodoxy

2025 will begin a multi-year rethinking of performance share units (PSUs) that started to pop up at the end of 2024. While PSUs have long been a staple of executive compensation, their effectiveness is mixed. They can be opaque to participants, difficult to administer, and create retention headaches when they don’t pay out. At the same time, they’re sometimes criticized for enabling overly generous payouts when they do.

PSUs aren’t going away overnight, but they are losing some ground or at least supporters. There are signs that the once-rigid proxy advisor view that companies must use PSUs may be starting to soften because of a small but loud group of investors who hate the vehicle. As simpler designs gain momentum, boards may feel more empowered to get creative to align with strategy rather than reverse-engineer designs to fit governance orthodoxy. That would be a welcome shift. Too many companies have twisted themselves into complex, overly engineered PSU structures—designed to satisfy proxy advisors and guarantee a payout. In the process, they dilute accountability and miss the point of incentive design entirely. PSUs just don’t work for certain types of businesses, and maybe that is okay. The compensation space is ready to rethink that orthodoxy.

(4) A Full Pendulum Swing on ESG.

The ESG backlash that began in 2023-24, amplified by public figures like Robbie Starbuck and cemented by the new administration, left companies rethinking how to discuss sustainability, DEI, and long-term value. Many companies introduced ESG metrics because they made strategic sense, but others just followed a trend. Now, boards are taking a more careful approach, wary of becoming political lightning rods.

What’s emerging is a reframe: ESG metrics are evolving into broader strategic priorities. But even that has limits. I predict a narrowing of focus—away from generic “strategic goals” and toward only those that are truly operationally critical. Expect increased emphasis on supply chain resilience, long-term sustainability, and risk mitigation—politically neutral but business-essential areas. Only the companies that use compensation to drive these priorities genuinely will continue down this path—marking a shift from some of the more performative ESG and DEI goals of recent years.

(5) Succession Planning Gets Serious

They say more than 10,000 Baby Boomers retire daily, including the many public company CEOs. Seamless leadership transitions are becoming more critical. As the Disney succession saga showed, weak succession planning can erode shareholder confidence, destabilize strategy, and embarrass all involved. In 2025, boards will become more hands-on with leadership planning—reviewing internal pipelines, working with search firms, and developing more transparent frameworks.

A leadership transition is scary for a director who’s never done it before. I’ve been involved in many this past year and can say it’s never easy. Still, as directors gain experience with CEO transitions, they will build confidence in their ability to lead through change rather than defer difficult decisions. That’s a good thing. Succession shouldn’t be a crisis. It should be a process.

(6) AI Lands on the Committee Agenda

AI is here, and it’s becoming central to how companies create value. Compensation Committees are taking notice. As AI reshapes operations, product development, and customer engagement, boards will increasingly ask: Are we rewarding the right behaviors? Incentive plans may begin to reflect AI-driven transformation—cost savings, process automation, innovation, and new revenue streams. At the same time, many companies will face the challenge of upskilling their workforce to operate in AI-augmented environments. Building a culture that supports that transformation is critical for many companies. Executives will need to become AI talent and lead through this shift. Those who can adapt successfully will lead the way, and Boards will need new ways to measure leadership impact.

AI will also reshape how the Committee itself operates. Benchmarking, peer group design, pay modeling, disclosure reviews—all of it is becoming faster, more data-rich, and more automated. AI won’t just change what gets rewarded but how rewards are evaluated, discussed, and governed. There’s a steep learning curve ahead and an opportunity for the compensation profession to evolve and lead through this shift (a big thought in my own mind these days)

Closing Thoughts

The landscape of executive compensation and corporate governance is becoming more dynamic, more uncertain—and, paradoxically, more demanding. In the face of all this complexity, smart boards are simplifying. They're stripping pay design back to its essence, aligning compensation with performance in resilient, credible, and clear ways.

In 2025, the goal isn’t just to keep up. It’s to lead—with discipline, adaptability, and a renewed focus on navigating our uncertain world skillfully.

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