The Advisors' Blog

This memo from Meridian Compensation Partners highlights some key issues that compensation committees need to pay attention to in 2025. They include business and political volatility, regulatory change, an expected increase in M&A, retention amidst uncertainty, and planning for executive retirement.

With respect to managing volatility, the memo says, “supporting the opportunistic behavior that can benefit the company and its investors may require more incentive design flexibility to appropriately reward executive leaders who can deliver business results, potentially in unconventional ways.” It suggests compensation committee evaluate each of these areas:

– Performance Metrics: Are the metrics used in the short-term and long-term incentive plans appropriate? Do they allow executives flexibility to drive the company’s success and adapt to a changing environment?
– Goal Setting: Given political uncertainty with the new administration, including potential tariffs and retaliatory tariffs companies should consider appropriate goals and what adjustment could be made for changes in public policy after the start of the performance measurement period.
– Goal Ranges: Does the expected volatility make the level of achievement less sure? If so, is it appropriate to expand the range around target goals? Or is it better to establish a target that is more likely to be achieved and tighten the payout range to limit the upside and downsides?
– Performance Measurement Periods: Given the business environment and potential limitations on the company’s ability to predict business activity over the next several years, a company may consider a shortened performance period, even though proxy advisors and many institutional shareholders prefer a three-year performance period.
– Adjusting Metrics and Use of Discretion: Have the appropriate non-reoccurring events been identified and defined for adjustment. Should the company establish principles to govern adjustment of payouts based on unanticipated events not included in the budget-setting process?

– Meredith Ervine