While every new year offers the promise of opportunity and a fresh start, concerns from prior years inevitably influence how we approach those opportunities. The same is true for compensation committees.
The pandemic has fallen further into memory and global economies are moving toward stabilization; however, a new White House administration adds uncertainty from a regulatory and macroeconomic standpoint. These factors are driving compensation committees’ focus and, naturally, their agendas for 2025.
Boards and management should prepare for a discussion in their January and February board meetings around risk mitigation, particularly with last year’s UnitedHealth tragedy.
Executive security certainly will be a focus, with discussions around investments for personal security, home security systems, personal use of company aircraft and cars and so on. However, there are broader considerations that should not be overlooked:
By addressing risk mitigation at a more strategic and philosophical level, organizations will be better prepared to find and retain these key contributors while ensuring business continuity in the event of the unexpected.
Whether the organization has weathered a market downturn or if performance is strong, as organizations head into their pay decisions to close 2024 and set pay for 2025, retention is yet another topic to consider. Compensation committees and management need to proactively consider retention and engagement from a compensation lens. This goes beyond understanding market competitiveness and includes:
Company-specific circumstances to consider include company performance (past, present and future), individual performance, executive leadership transitions and succession planning, shareholder feedback and so on. Thoughtfully regarding these facts and circumstances is important for ensuring pay decisions have a strong rationale and represent the “right thing” for the organization. This is particularly true when retention pay practices are under close external scrutiny.
While compensation is a key driver of executive retention and engagement, it certainly is not the only driver. In addition to thoughtful pay planning, it is important that compensation committees understand and consider the myriad qualitative factors at play, such as the organization’s mission, purpose and culture; development and growth opportunities; and clearly articulating and communicating the value an executive brings to the organization. Combining these factors with strategic compensation planning will go a long way to enhance executive retention and engagement.
Calamity happens, and we all know it. Boards are increasingly expecting management teams to weather the storm and address unique unforeseen issues seamlessly, which can be a punishing but expected task.
Along with traditional annual challenges, boards and executives should be prepared in 2025 to address unexpected outcomes. For example, as of this writing, President Donald Trump has been inaugurated, and organizations need to be prepared for a new-but-familiar administration’s regulatory and legislative changes, which are expected to be more business-friendly toward executive compensation and corporate governance disclosures. Additionally, under the new administration, companies may face headwinds from potential tariffs and immigration policies, which will require consideration of the labor and productivity constraints that are at risk.
Ultimately, volatility, headwinds, tailwinds and everything in between are simply the business of business. For executives to be equipped to go into the boardroom with solutions, it will be critical to stay abreast of the latest insights and ensure they have the resources in place to monitor and combat challenges as well as provide guidance on how to move forward.
Additionally, compensation committees, compensation professionals and management will want to remember the importance of considering the key tenets of incentive design and goal setting. By focusing on their incentive design principles, as well as their compensation philosophy and business environment, decisions that are made in Q1 will help set organizations up for success in an ever-changing business environment.
A version of this article appeared in Workspan on Jan. 20, 2025. All rights reserved, reprinted with permission.