Executive pay: lessons from 2025 and board priorities for the year ahead

September 2025 | SPOTLIGHT | BOARDROOM INTELLIGENCE

Financier Worldwide Magazine

September 2025 Issue

With the 2025 North American proxy season now officially closed, emerging trends in executive compensation are offering valuable insights and shaping important considerations for boards going forward. Here, we explore some of these issues and ways boards and management teams can start to incorporate these into planning for next year’s shareholder meeting.

Say-on-pay support stays steady

A review of voting results for say-on-pay (SOP) proposals at Russell 3000 and S&P 500 companies reveals outcomes consistent with prior years. As of June, average support for the Russell 3000 was 90.6 percent and 23 companies (1.2 percent of total) have failed SOP so far this year. For the S&P 500, average support was 89.5 percent with five companies (1.2 percent of total) failing to secure majority support.

In general, SOP proposals receive overwhelming support from shareholders, with a relatively small number of companies failing the non-binding advisory vote. In fact, average support levels tend to fluctuate around 90 percent. While investors continue to show broad support for executive pay programmes, boards should be cautious not to become complacent about their pay programme. Issuers also understand that SOP support below 80 percent generally requires some level of response from the board. Further, staying attuned to the specific practices that tend to trigger investor pushback is essential to head off any surprises.

For example, of the 23 companies that failed to receive majority support, seven had underlying pay-for-performance concerns that were compounded by special awards, poor design practices, questionable rigour of performance goals, or insufficient shareholder engagement and related disclosure. This indicates that failed votes are rarely driven by a single factor. More often, they result from a cumulative set of shortcomings.

Large, one-time grants, often used for retention purposes or to bring on new hires, tend to draw criticism when lacking clear performance alignment. Proxy advisers and investors are expected to remain highly attentive to substantial one-time grants, closely examining both the justification behind them and the structural elements of their design.

Shareholders continue to prefer equity awards linked to performance goals (although we are starting to see some investors question some elements of performance-based pay). Proxy advisers, in policy guidance leading up to the 2025 season, hinted at taking a more holistic view of equity awards, balancing performance and time vesting elements.

Board and management should regularly evaluate compensation programmes against shifting investor expectations, supported by ongoing engagement efforts. They should also provide robust disclosure around one-time or discretionary pay decisions, detailing the rationale, alternatives considered, and alignment with shareholder interests.

DEI metrics disappearing from incentive plans

When ESG metrics started making their way into executive compensation plans, diversity, equity and inclusion (DEI) measures quickly became among the most commonly used. According to data from Farient Advisors, at the peak in 2023, 57 percent of S&P 500 companies incorporated DEI metrics into executive compensation. However, this fell to only 22 percent in 2025, demonstrating how political, legal and shareholder pressures have accelerated the removal of these metrics from executive compensation plans.

Some issuers are reframing their DEI programmes and disclosures to emphasise inclusion and employee engagement more broadly while downplaying diversity. Board and management should consider replacing quantitative metrics, like representation targets, with more qualitative measures.

Perks under pressure

Perquisites account for only a small portion of total executive compensation but are on the rise and experiencing renewed interest from regulators and investors. Two perks in particular – airplane use and security services – are experiencing significant increases. Based on recent analysis by Glass Lewis, chief executive air travel costs at S&P 500 companies saw a median increase of nearly 46 percent between 2019 and 2023. Median personal security costs surged 119 percent over the same period. Such sharp increases in chief executive perks not only raise cost concerns but draw scrutiny from regulators and shareholders alike.

While excessive perks, as a sole issue, rarely lead investors to oppose SOP, they can be an indicator of weak pay for performance design, and prompt investors to delve deeper into a company’s pay programme. At the same time, regulators are seeking more disclosure around these expenses. Disagreement over the classification of these benefits is often at the root of Securities and Exchange Commission (SEC) challenges. For instance, the SEC considers executive security expenses a personal benefit, making them a disclosable perquisite, while many companies classify them as business expenses.

Boards and management should benchmark their perks payments: outliers draw scrutiny, so reviewing how you compare to peers regularly is important. Also important is reviewing your internal classification framework to ensure it reflects SEC guidance.

Rules of investor disengagement

Mid-proxy season, the SEC updated its guidance on Schedule 13G and 13D filings for investors owning more than 5 percent of a company’s share capital, tightening the criteria for beneficial ownership reporting and clarifying when investors must file a long-form Schedule 13D versus a short-form 13G. While the SEC indicates these adjustments were intended to enhance transparency, they have also had a chilling effect on investor engagements, discouraging some institutional investors from actively participating in governance discussions.

The result? Reduced visibility into institutional voting behaviour and rationales. For companies that received low SOP support, gaining a clear understanding of which aspects of their pay programmes are triggering concern may be more challenging this year. It remains to be seen if investors will feel less confined during the off-season engagement cycle, when discussions are not necessarily tied to specific items up for vote. However, in the meantime, getting the feedback you need may require an altered approach.

Board and management should keep discussions topic-specific as opposed to company-specific. Investors may be more willing to discuss their broad views on topics and what they consider best practice. In addition, the new guidance pertains to 5 percent holders, so consider expanding outreach to holders below this threshold for more candid conversations.

Next steps for 2025 and beyond

For those companies that are concerned about their executive compensation plan, the key is to reach out to their shareholders to pressure test their current plan. Starting the dialogue now with a comprehensive shareholder engagement outreach programme enables companies to course-correct for 2025 and lay the groundwork for a more defensible plan in 2026.

Etelvina Martinez is a managing director at Alliance Advisors. She can be contacted on +1 (202) 340 0735 or by email: emartinez@allianceadvisors.com.

Etelvina Martinez

Alliance Advisors