As we approach 2026, European companies are facing challenges in designing and implementing effective executive compensation strategies. The global business environment is characterized by increasing volatility, technological disruption, and evolving stakeholder expectations. Recent insights from our recent ECBA Europe Webcast provide valuable perspectives on these challenges and opportunities.
A growing minority of European companies are making bold adjustments to their executive pay arrangements to remain competitive with global peers, particularly those based in the U.S.. This shift is driven by the need to attract and retain top talent in a globally competitive market. The changes these companies are making tend to centre on meaningful increases to overall remuneration quantum, usually by raising long-term incentive (LTI) opportunities, In fact, over 70% of companies making bold changes have increased these opportunities. In parallel, an influential minority of these companies are radically revising their approach to LTI design, in many cases introducing hybrid plans that combine performance shares and restricted shares.
These bold changes are not without scrutiny. Investors and proxy advisors are closely examining them, particularly when they harbour concerns that substantial increases in pay may occur without corresponding performance improvements. To win investor and proxy support for bold policy proposals, companies have had to improve their articulation of the business case for change and the quality and intensity of their engagement with investors. Companies’ need for greater global competitiveness is therefore driving up investor expectations around the appropriate degree of transparency regarding the rationale for adopting a given pay policy and the relationship between pay and performance.
The current high degree of global economic uncertainty, stemming in large part from geopolitical developments and accelerating technological change, is making performance assessment for pay purposes increasingly complex. Companies are struggling to align pay with performance on a formulaic basis, increasing the role of derogation clauses, discretionary powers, and one-off awards in adapting the implementation of remuneration policies to exceptional circumstances.
While these kinds of measures provide flexibility to remuneration committees, their use is subject to intense scrutiny from investors and proxy advisors, who demand greater transparency regarding their operation and application. The challenge for committees lies in balancing their need for greater flexibility with these requirements for transparency and accountability.
There remains significant variation in pay-for-performance disclosure practices across Europe, with companies based in countries like the UK and the Netherlands exhibiting more consistently transparent practices than others. Proxy advisors and investors are pushing companies everywhere to improve disclosure, particularly around the operation of incentive plans and performance metrics. Indeed, disclosure concerns account for around a third of all negative proxy voting recommendations, with some companies facing particular criticism for the vagueness of their remuneration reporting.
There is evidence that companies that have improved their disclosure practices have seen more favourable proxy voting recommendations. As we move towards the 2026 AGM season, it's clear that increased transparency and clear communication around executive compensation will be crucial in winning continued investor and proxy support.
The executive compensation landscape is evolving rapidly, driven by the rising need for global competitiveness, the challenges of performance assessment in a volatile environment, and the push from investors and proxies for greater transparency in remuneration disclosure practices. As organizations navigate these complexities, it's essential to stay informed about the latest trends and best practices.
By understanding these dynamics and adapting executive compensation strategies accordingly, companies can better align their practices with shareholder interests and market expectations. As we look ahead to 2026 and beyond, the ability to navigate these challenges effectively will be critical to success.
