Share

Elisabeth Snyder Consultant Megan Sandquist Consultant

Five questions every compensation committee should ask when evaluating pay programs.

Originally published on the Corporate Board Member website.

Executive compensation has long been used for rewarding performance and retaining talent. When boards only evaluate pay through a reward-and-retention lens, however, they invite scrutiny from investors, proxy advisors and regulators, particularly around alignment with strategy and long-term value creation.

As attention to pay vs. performance intensifies, executive compensation programs and CD&A disclosures send a message far beyond the boardroom, signaling governance quality, strategic clarity and credibility. Effective committees don’t just approve pay programs, they challenge them. They listen to dissent and apply disciplined oversight, judgment and consistency, continually testing alignment with strategy. To guide this process, here are five questions boards should ask their compensation committees:

1. What are we actually rewarding?

Executive incentive plans do more than reward results—they shape behavior. Incentive design influences how leaders prioritize decisions, allocate capital and manage trade-offs. When incentives are misaligned with strategy, they can encourage behaviors that undermine long-term objectives, even if short-term results appear acceptable.

Boards should look beyond stated plan objectives and examine the motivations created by incentive metrics and goals. What actions are executives most strongly driven to take? What risks might they accept, or avoid, based on how performance is measured and rewarded?

Persistent divergence between incentive outcomes and strategic intent raises questions about board oversight.

Read the full article on Corporate Board Member