Five Issues Defining the Fall 2026 Compensation Committee Agenda

As compensation committees prepare for fall planning meetings, our annual look at the issues shaping their agendas arrives against a backdrop in which many established assumptions about compensation, leadership, governance, and business planning are being tested from multiple directions and may warrant a fresh look.

Rapid advances in artificial intelligence (AI) and other technologies are accelerating business transformation and raising new questions about whether and how incentives should evolve. Long-standing incentive design conventions are becoming less settled as committees reconsider whether traditional approaches still suit the strategies and risks companies face. Ownership transitions raise questions about whether leadership teams and incentive structures are equipped for what comes next, while continued CEO turnover may warrant shifting the focus from succession planning to succession readiness. Meanwhile, potential changes to Securities and Exchange Commission (SEC) disclosure requirements could materially change how many companies communicate compensation decisions to investors—without necessarily changing what investors expect from boards.

These developments are challenging many compensation committees to reassess whether established practices remain fit for purpose. Market norms, legacy incentive structures, traditional succession processes, and prescriptive disclosure requirements may provide useful discipline, but they can also obscure a more important question: what will best support the company’s strategy, leadership needs, and accountability in the environment ahead? The five issues we examine below each ask committees to look beyond compliance or convention and consider whether their programs, processes, and communications are positioned for what comes next.

1. Compensation Accountability in a Lower-Disclosure Environment

For more than 15 years, executive compensation governance has been shaped by an increasingly prescriptive framework of mandatory disclosure, regular say-on-pay votes, proxy advisor scrutiny, and institutional investor engagement. Now, as the SEC considers significantly reducing those requirements for many companies, boards may face a seeming paradox: less required disclosure could make voluntary disclosure more important. As companies gain greater discretion over what to disclose and explain, what they choose to say, or not say, may itself become an important governance signal to investors.

The SEC’s proposed new filer framework raises a more fundamental question than which requirements may disappear: Are compensation committees prepared to demonstrate pay discipline and accountability when much of today’s required disclosure could become optional?

If adopted as proposed, the rules would significantly reduce executive compensation disclosure obligations for many public companies, including eliminating mandatory say-on-pay votes, the Compensation Discussion & Analysis (CD&A), pay-versus-performance and CEO pay ratio disclosures, compensation committee reports, and several compensation tables.

For compensation committees, the disclosure question in turn would arguably shift from one of compliance (“What must we disclose?”) to something far more strategic: “What do we want investors to understand about how executive compensation supports strategy, reinforces pay-for-performance, aligns with shareholder expectations, and reflects thoughtful board oversight?”

The New Accountability: Expectations and Governance Capital

Reduced disclosure may look like regulatory relief, but investor expectations rarely decline simply because requirements do. Say-on-pay was never just a shareholder vote. It created an annual accountability event that influenced compensation design, engagement, and disclosure. Boards became accustomed to explaining how incentives supported long-term strategy, how they evaluated performance, and why outcomes reflected sound judgment.

If mandatory requirements are reduced, boards will have greater discretion over how, and how often, they communicate. But that discretion will not be exercised on a blank slate. Over years of say-on-pay engagement and increasingly detailed compensation disclosure, companies and their investors have developed expectations around the information needed to evaluate compensation decisions and board oversight. Those expectations may persist even if the underlying disclosure requirements do not.

This is where governance capital matters. Companies build governance capital over time by communicating credibly with investors, demonstrating disciplined oversight, responding thoughtfully to shareholder concerns, and explaining difficult compensation decisions candidly. That accumulated credibility can give boards greater latitude when circumstances require it, particularly during periods of underperformance, leadership transition, strategic change, or other uncertainty. Conversely, a sudden retreat from information investors have come to expect may itself send a message, even if the company is fully compliant with the new disclosure requirements.

The objective is not to recreate today’s CD&A voluntarily. Instead, companies should identify the information their investors rely on most, such as how compensation supports strategy and talent management, how performance outcomes are evaluated, and why particular decisions serve long-term shareholder interests, and determine what remains important to communicate. For many companies, the strongest approach may be shorter and more principles-based, providing enough context to make board judgment understandable without preserving every technical element of the current disclosure regime. The right approach will depend on the company’s investor base, governance history, business circumstances, and likely areas of scrutiny.

Questions Compensation Committees Should Be Asking

Rather than waiting for final SEC rules, compensation committees can evaluate whether their communication strategy would remain effective in a lower-disclosure environment. Questions worth discussing include:

• If investors had less standardized compensation information, what would we want them to know in order to evaluate whether the committee is doing its job well?
• What information have our investors come to expect from us, regardless of whether we are technically required to provide it?
• If a CD&A were no longer required, what information would we voluntarily continue to provide?
• Does our compensation narrative clearly explain how executive pay supports long-term strategy?
• How do we explain board discretion when outcomes are not easily captured by formulaic pay-for-performance measures?
• Have we developed sufficient credibility with investors that reduced disclosure would not undermine confidence?
• Are we treating compensation disclosure primarily as a compliance exercise or as an opportunity to demonstrate board responsiveness and strengthen our governance capital?

Preparing for the 2027 Proxy Season

Investor expectations often outpace regulation, and reduced disclosure is unlikely to diminish institutional investors’ scrutiny of executive compensation. Proxy advisors may also redirect, rather than lessen, their scrutiny. In its 2026 Governance Annual Global Benchmark Policy Survey, Institutional Shareholder Services (ISS) is considering how to address significant compensation concerns when no say-on-pay vote is on the ballot, including whether adverse recommendations should initially target the compensation committee chair and potentially escalate to other committee members or the full board.

The stakes for clear, credible compensation disclosure may therefore be even higher without a say-on-pay vote, particularly if investors and proxy advisors increasingly use director elections as the primary way to express dissatisfaction.

In a lower-disclosure environment, voluntary communication may become an even stronger signal of governance quality. The companies that distinguish themselves may not be those that disclose the least, but those that communicate most effectively when no longer required to do so. The objective is to preserve and build governance capital by reinforcing confidence that compensation decisions reflect disciplined oversight and a commitment to long-term shareholder value.

For calendar-year companies, these issues may become relevant sooner than expected. Although the timing and scope of final SEC rules remain uncertain, decisions shaping the 2027 proxy season will begin this fall as committees review compensation programs, governance priorities, and shareholder engagement strategies.

Waiting for final rules is not a strategy. Boards that begin defining their compensation communication approach now will be better positioned to respond thoughtfully, rather than reactively. Although regulatory accountability may lessen, investor accountability will not disappear. Instead, companies may have greater responsibility for deciding what information is important enough to provide voluntarily.

The final rules may change what companies must disclose, but not necessarily what investors expect boards to demonstrate. In a more flexible disclosure environment, voluntary disclosure becomes a strategic governance decision rather than simply a compliance exercise. The measure of effective disclosure and board effectiveness may ultimately be less about what companies are allowed to omit, and more about whether they continue to provide the context investors need to understand and evaluate board decisions.

2. Long-Term Incentive Design: Is It Time for a Refresh?

For much of the past decade, the direction of long-term incentive (LTI) plan design appeared relatively settled. Performance share units (PSUs) became the dominant LTI award among large public companies, reflecting investor expectations for stronger pay-for-performance alignment and governance practices that emphasized objective, multi-year performance measurement.

Today, however, the operating environment has become more volatile, business planning horizons have shortened, and external events have demonstrated how quickly LTI plans can become disconnected from the realities executives are managing. At the same time, evolving proxy advisor perspectives are expanding the range of design alternatives available to boards.

Rather than searching for a new market standard, compensation committees have an opportunity to reconsider whether the current mix of long-term equity awards remains the most effective way to support strategy, retain leadership talent, and create long-term shareholder value.

Governance Expectations Continue to Evolve

Historically, proxy advisory firms and many institutional investors strongly favored performance-based equity, leading many companies to increase PSU weighting while reducing the role of stock options and traditional time-based restricted stock.

More recently, however, governance perspectives have become more nuanced. Longer vesting periods for time-based equity awards—particularly vesting schedules extending five years or longer—are increasingly viewed as providing meaningful executive retention and shareholder alignment. At the same time, investors continue to focus on the quality of incentive design rather than the exclusive use of any single equity award type.

For boards, this creates an opportunity to rethink the composition of the LTI portfolio.
Instead of asking which equity award type is "best," directors may instead ask:

• Have changing business conditions expanded or narrowed the range of equity award types we should be considering?
• Is our plan design customized for our business, or are we defaulting to prevailing market practice or proxy advisor preference?
• Can we forecast PSU metrics over three years with enough precision to set meaningful incentive performance ranges?

For some companies, the answer may still be a PSU-centric program. For others, the answer may be a more balanced portfolio of LTI awards.

Reconsidering the Equity Toolkit

Compensation committees may benefit from reconsidering the respective roles of the principal equity awards available to them:

Stock options are receiving renewed consideration

Offering a longer performance period—up to 10 years vs. typical 3-year PSUs—stock options can provide an entrepreneurial incentive that rewards sustained growth. Because they do not depend on multi-year performance goals, they also reduce reliance on forecasting accuracy during periods of economic uncertainty.

Competition for executive talent is another reason to consider stock options, as many public companies are now competing with private equity (PE)-owned companies for top executive talent. Among PE portfolio companies, using stock options as the sole form of LTI is practically universal.

That said, companies considering adding or increasing the use of stock options need to weigh the impact on share usage, dilution, and overhang. As a rough rule of thumb, a company needs to grant three options to deliver the equivalent target value of 1 RSU or PSU. Furthermore, the long life of options, vis-à-vis RSUs and PSUs, can result in relatively higher overhang.

Reconsidering the equity toolkit does not necessarily mean moving away from PSUs

Where PSUs remain a central component of the LTI program design, committees can consider ways to make their design more adaptable, including:

• The use of relative metrics, including but not limited to, relative total shareholder return (TSR)
• Wider performance ranges and/or “strike zones” around target performance
• Changing from “static” to “self-adjusting” performance targets

Interest has also grown in high-risk/high-reward PSU grants tied to extraordinary goals, known as “moonshot” awards. Typically, these grants are limited to one or two executives and are often tied to absolute stock price targets. While shareholders may view these plans favorably due to their link to value creation, committees need to proceed with caution. Because these awards are often highly leveraged, they can trigger backlash if shareholders perceive performance targets insufficient to justify the payouts. Committees should also consider the signaling and retention implications for the broader leadership team, particularly where extraordinary opportunities are provided to only one or two executives.

Company Context Should Drive Design

Although it is important to understand market practice, proxy advisory firm views, and shareholder preferences, effective LTI programs should reflect each company's unique circumstances, including:

• Business strategy and value creation model
• Talent profile and company culture
• Industry cyclicality and forecasting accuracy
• Share availability and financial impact

The objective is not to determine whether PSUs, RSUs, or stock options are inherently superior. Rather, it is to determine whether the overall mix of LTI awards (including cash) appropriately supports the company's long-term strategy while balancing performance alignment, retention, governance expectations, and prudent use of shareholder-approved equity.

There is no universal blueprint for LTI design. The strongest programs are intentionally designed for the company's own strategic objectives, operating environment, and shareholders—not simply modeled after prevailing market practice or proxy advisory firm views.

3. Aligning Executive Incentives with Business Transformation

Choosing the right mix of LTI awards is only one dimension of incentive design. Compensation committees must also ensure that executive incentive programs reinforce the company’s business strategy. For companies undergoing significant business transformation, that responsibility becomes more complex.

Adapting Executive Incentives to Business Change

Many organizations today are navigating strategic inflection points. Some are repositioning their portfolios through acquisitions or divestitures. Others are investing heavily in AI and digital capabilities, restructuring operations, entering new markets, or fundamentally changing their business model. While these transformations differ in nature, they raise a common question for compensation committees: Do executive incentive programs appropriately support both the transformation itself and the delivery of near-term financial performance?

This tension is especially visible in the technology industry, where AI is reshaping products, platforms, pricing models, and workforce design. Meanwhile, organizations outside the technology sector are making substantial technology investments while often facing greater near-term pressure to deliver revenue growth, profitability, and cash flow.

Importantly, this does not mean that traditional incentive metrics are no longer appropriate. Revenue growth, profitability, cash flow, returns, and shareholder value creation remain the foundation of most executive incentive plans. These measures are objective, well understood by management and investors, and directly aligned with financial performance.

The challenge arises because business transformation often requires decisions that may temporarily pressure those same financial measures. Investing in new technologies, repositioning portfolios, restructuring activities, integrating acquisitions, or expanding into new markets often involve significant costs before the anticipated benefits are realized. Yet investors continue to expect companies to deliver strong financial performance throughout the transformation process.

As a result, compensation committees must balance two equally important objectives. Executive incentive programs should continue to hold management accountable for delivering financial results while also encouraging the strategic decisions that position the company for future success and create long-term shareholder value.

Approaches to Realigning Executive Incentives

One approach is to incorporate a strategic scorecard as a weighted component in the annual incentive plan, aligned with the organization’s transformation priorities. These measures may focus on milestones associated with acquisitions or divestitures, implementation of technology initiatives, development or commercialization of new products, or other strategic initiatives that are expected to strengthen future performance. While these measures may be more qualitative than traditional financial metrics, they should nevertheless be clearly defined, measurable where practical, and closely aligned with the company’s strategic objectives.

At the same time, compensation committees should recognize that investors have generally encouraged companies to place greater emphasis on objective financial performance and rely less on subjective assessments. As a result, strategic objectives are most effective when they complement, rather than replace, financial measures. The emphasis should remain on maintaining accountability for financial performance while recognizing meaningful progress toward strategic priorities that may not yet be reflected in the current year’s financial results.

A second approach is to evolve the incentive metrics over time, as the economics and objectives of the transformation become clearer. For example, a company investing in AI may initially use measures tied to capability building, technology deployment, governance, or workforce adoption. As those capabilities mature, however, the emphasis should increasingly shift toward business outcomes such as cost reduction, speed to market, revenue per employee, customer adoption, margin improvement, or other indicators of measurable value creation. The objective should not necessarily be to create a standalone “AI metric,” but to determine whether existing financial and strategic measures appropriately capture how AI is changing value creation and business performance.

A third approach is to modify or create new LTI instruments that reward achieving the business outcomes that underpin these transformational initiatives. For example, a transformation designed to improve operational efficiency may ultimately be expected to produce sustainable margin expansion. Similarly, a portfolio repositioning may be intended to strengthen returns or improve cash generation over time. 

Therefore, linking annual incentive plan goals to the near-term tactics that support these initiatives, and LTI plan goals to the intended business outcomes that materialize over multiple years, can effectively incentivize strategic actions and hold management accountable for their results.

This does not mean incentive plans should be redesigned each time the transformation enters a new phase. In many cases, committees may be better served by preserving durable core financial measures while introducing controlled flexibility through a strategic component, modifier, adjustment framework, or bounded discretion. This can allow the plan to recognize meaningful transformation progress without weakening accountability or creating a series of short-lived metrics that quickly become obsolete.

Finally, committees should consider how significant transformation-related costs are treated for incentive purposes. In some situations, restructuring expenses, transaction costs, or other one-time investments may make it difficult to evaluate underlying operating performance against goals established at the beginning of the year. Where material transformation costs could not reasonably have been forecast and incorporated into the original budget, committees may determine that excluding certain board-approved transformation costs from incentive calculations provides a more meaningful assessment of management’s performance. Any such adjustments, however, should be applied thoughtfully, consistently, and with appropriate disclosure to investors.

Ultimately, incentive plans should continue to reinforce financial discipline while recognizing that creating long-term shareholder value often requires management to make investments and decisions whose benefits extend well beyond the current performance period. The most effective incentive designs will evolve with the transformation itself. Early-stage measures may appropriately emphasize capability building and execution; over time, the burden of proof should shift toward adoption, measurable business outcomes, and durable improvements in the company’s operating model.

4. Beyond the Transaction: Preparing Leadership and Incentives for What Comes Next

Preparing for an IPO, sale, recapitalization, secondary sale, or other liquidity event triggers familiar priorities: ready the finance function, strengthen governance, complete diligence, shape the investor or buyer story, and review compensation. Yet transaction mechanics are only part of readiness.

Well before an event, directors and PE sponsors should ask: 

• Is this team ready to lead a larger, more complex company? 
• Who can grow to the next level and who will the business outgrow? 
• Where are the critical capability and succession gaps? 
• Is the leadership model suited to the governance, operating cadence, and scrutiny ahead? 
• How should incentives evolve to support value creation and align management with new owners or public shareholders?

Compensation cannot remedy gaps in leadership readiness, but even a capable team may struggle if incentives do not retain critical leaders or support the next phase of value creation. The broader question is whether the leadership model and incentive structure fit the ownership model that will follow. The best-prepared companies are often already using the leadership model, incentives, and organizational discipline to clarify expectations, accountability, and what executives must deliver as the ownership and/or governance model evolves.

That readiness challenge unfolds in three steps: underwrite leadership early, build for the destination while preserving optionality, and ensure the team can operate effectively under the next ownership model.

Start Early and Underwrite Leadership Readiness

Once a likely path (or paths) to monetization emerges, leadership readiness should become a value-creation priority. Waiting until a transaction is imminent narrows the board’s choices and raises the cost of addressing gaps.

Ahead of a significant investment, a PE sponsor engaged Pearl Meyer to assess the organization and senior team. The assessment identified capability gaps for the company’s next growth phase, leading the board to appoint an experienced CEO and begin reshaping the senior team.

Despite pressing operational and commercial demands, the CEO’s first hire was a proven, strategic CHRO, reflecting a conviction that the next phase depended on leadership capacity, operating discipline, and organizational depth. That hire began a multi-year effort to strengthen talent across the organization, and the company later successfully approached the public markets with a team built for scale.

As the team evolved, the board created a comprehensive compensation framework for executives expected to lead through the liquidity event and beyond. Pay, equity participation, vesting horizons, and performance expectations were calibrated to each role in the value-creation plan with a particular focus on alignment with existing and future stakeholders. Leadership readiness is an underwriting issue as much as a human capital issue. Directors and sponsors should understand what capabilities are needed in the next stage, what critical talent is likely to remain, and whether incentives align with the investment horizon and anticipated ownership model.

Once the required leadership is clear, the question shifts to design: how should the team and incentives evolve without limiting future choices?

Build for the Destination While Preserving Optionality

A CFO skilled at building foundational infrastructure like reliable forecasting may not be the right leader to navigate a sale, lead an IPO roadshow, or meet a new owner’s reporting expectations. A relationship-driven commercial leader may not be equipped to build a sales organization at scale. Boards should recognize past contributions while also critically assessing what it will take to succeed in the future.

The same flexibility should extend to compensation. Early leaders should share meaningfully in the value they helped create, but legacy arrangements should not make leadership changes prohibitively expensive, constrain the board’s ability to evolve the team, or create awards difficult to explain to future stakeholders.

Transaction-related grants or equity refreshes should not become the answer to every retention concern. Instead, boards should first identify critical leaders, assess retention risk and existing wealth opportunities, and determine whether incremental awards are warranted. The objective is to retain the capabilities needed before and after the transaction without limiting the board’s ability to make changes as the business evolves.

Make Team Effectiveness Part of Transaction Readiness

Individual capability is only part of readiness. Even a “dream team” of accomplished executives must operate cohesively; experience alone does not create an effective team.

At another company approaching an IPO, an executive team had changed substantially as the business scaled but had not aligned on the culture, operating model, or leadership behaviors required to deliver the plan. Leadership assessment, candid feedback, development planning, and coaching for the top 50 leaders clarified expectations, improved decision-making, and strengthened succession depth.

The challenge was to add the predictability and transparency expected under the next ownership model without diluting the speed, entrepreneurial ownership, and customer focus that led to the company’s initial success. Compensation can support that transition if it evolves with the business. That includes reassessing whether performance measures, time horizons, and equity design reflect the next value-creation plan. Short-term incentives should reinforce operating priorities and discipline, while long-term equity should align leaders with sustained value creation rather than the transaction itself.

Boards should recognize past contributions while ensuring that future rewards reflect the expectations of the new environment. Aggressive top-line growth may need to be balanced with long-term profitability, cash generation, predictability, or capital efficiency. A strong incentive program should make that shift explicit.

The Real Test of Readiness

A transaction is an important milestone, not the destination. Management may view it as the culmination of years of work; new owners or public shareholders will see it as the beginning of a new performance period. The real test is whether the company can sustain performance after the ownership model changes with the right leaders, an effective team, and incentives aligned with the next phase of value creation.

5. Moving from Succession Planning to Succession Readiness

Over the past two years, CEO turnover rates have been making headlines. In 2024, U.S. organizations recorded 2,221 CEO departures—the highest annual total since Challenger, Gray & Christmas began tracking the data in 2002. In 2025, total CEO departures decreased 9%, but publicly traded companies experienced a record high of 446 CEO transitions. During 2026, the pace of turnover has eased, but the underlying pressures on CEOs—and the complexity of replacing them—have not.

While the easing in turnover may seem encouraging, the underlying challenge remains. Increasingly, boards recognize that replacing a CEO has become every bit as risky as retaining one. The most significant challenge is ensuring the organization is prepared for a successful transition whenever it occurs. That is why the conversation should move beyond succession planning to succession readiness.

A Different Question for Boards

Most board succession discussions start with a familiar question: Who could replace our CEO? It’s an important question, but it is no longer the most important one.

Instead, boards should ask: If our CEO were unable to lead tomorrow, how ready would our organization be? The difference is subtle, but significant. The identification question is a little easier to answer. The readiness question is harder because it’s about whether the organization has developed the leadership capacity to execute its future strategy through a period of transition.

The difference between these two questions is what we call the Succession Readiness Gap—the gap between the leadership capabilities an organization’s future strategy will require and the capabilities its leadership bench is prepared to deliver.

What Succession Readiness Requires

The CEO role has changed dramatically over the past decade. Today’s CEOs are expected to deliver financial performance while simultaneously leading enterprise transformation, harnessing AI, navigating geopolitical uncertainty, responding to activist investors, strengthening culture, and engaging an increasingly broad set of stakeholders. The role has become more demanding, more visible, and less forgiving. As a result, success in the role also increasingly depends on effectively leveraging the broader leadership team.

What does this mean for succession planning? One of the biggest mistakes boards can make is assuming the next CEO should look very much like the current one, especially when the current CEO is high performing. Effective succession begins with defining the strategic leadership profile required for the future, not memorializing the profile that succeeded in the past and is serving the company well in its current state.

A different approach to succession readiness is to treat succession as an ongoing leadership development process rather than an annual governance exercise. This approach intentionally gives future leaders experiences they cannot acquire at the last minute—leading enterprise-wide transformations, managing through uncertainty, engaging with investors, presenting to the board, and making strategic decisions beyond their functional expertise. Effective succession planning should include intentional development that prepares executives sooner with the skills that matter for the future.

Just as importantly, directors should build meaningful relationships with potential successors over time. Those relationships provide insights into judgment, resilience, learning agility, and leadership style that are difficult to gain through formal succession reviews alone.

Five Questions That Change the Conversation

Boards seeking to strengthen succession readiness should periodically challenge themselves to answer five questions to shift succession planning from a periodic event to an ongoing strategic capability:

1. If our strategy changed tomorrow, would our identified successor still be the right CEO?
2. What enterprise experiences must each leading candidate gain over the next 24 months?
3. What skills can be covered by others on the C-suite team—not necessarily the CEO?
4. How well does the board know its future leaders outside of formal succession reviews?
5. What are we doing today to close our Succession Readiness Gap?

Leadership transitions are inevitable. Markets evolve, strategies change, and CEOs retire or move on. The pace of transitions will fluctuate from year to year. The organizations that navigate those transitions most successfully are not necessarily those that experience fewer CEO changes. More often, successful transitions occur when the organization has invested consistently in preparing leaders long before a transition becomes necessary.

Continued CEO volatility and growing leadership complexity have shifted succession readiness from a governance responsibility to a strategic advantage.

What This Means for Fall Agendas

Taken together, these five issues underscore the importance of intentional decision-making for compensation committees this fall, striking the balance between preserving the discipline that has supported strong governance, while not letting legacy design conventions or compliance frameworks substitute for judgment. Whether the question is disclosure, LTI mix, transformation metrics, transaction readiness, or succession, the same test applies: does the program, process, or communication fit the company’s strategy, leadership needs, ownership context, and stakeholder expectations?

Committees that address these questions proactively rather than waiting for circumstances to force the issue will be better positioned to retain flexibility, reinforce accountability, and support sustained value creation through 2027 and beyond.