The Compensation Conversation Executives Keep Putting Off

A compensation conversation held on purpose, not under pressure.

Boards will spend six hours on a strategic plan and six minutes on the compensation conversation that determines whether the leader executing that plan sticks around to finish it.

Boardroom after boardroom, three decades of advisory work across four continents turns up the same pattern. The strategy gets rigor. The org chart gets rigor. Pay gets a rushed agenda item near the end of the meeting, handled quickly so everyone can get to the airport.

Why the Compensation Conversation Gets Skipped

Money is personal. That's reason enough for most boards and most executives to route around it.

A CEO raising the topic of their own pay risks looking self-interested in front of directors they need to trust them. A board raising the topic of succession-linked compensation risks signaling that the current leader's seat has an expiration date. Neither party wants to be the one who brings it up first, so the topic waits, and waiting has a cost that compounds. Compensation communicates something beyond a number on a spreadsheet. It answers questions every executive is silently asking, questions like how much confidence the organization places in their leadership. When those questions go unanswered long enough, people supply their own answers, and those assumptions rarely favor the organization.

Public companies at least have a forcing mechanism. A proxy statement, a say-on-pay vote, an outside compensation committee with its own advisors. Private companies and family-owned enterprises, which make up a large share of the mid-market executives reading this, don't have that structure pushing the conversation forward. Founders in these firms often treat their leadership teams like extended family, which creates a false sense of security. A verbal understanding about a future liquidity event works fine during stable operations, but it rarely survives contact with a professional buyer, who values documented agreements over vague promises. Compensation advisory firm Pearl Meyer, in its analysis titled Succession Planning and Leadership Development: Unique Challenges for Private Companies, notes that private boards operate without the shareholder pressure and SEC deadlines that keep public boards on schedule, which makes it far easier for a difficult conversation to get pushed to the following year, and then the year after that.

PwC's Annual Corporate Directors Survey found that nearly one third of directors cite a simple reason for delaying succession planning: the sitting CEO is meeting expectations, so why disturb a good thing. That logic ages badly. The moment performance dips or a departure becomes real, the board is negotiating compensation and succession simultaneously, under time pressure, with far less room to negotiate than it had a year earlier.

Findings reported in Korn Ferry's guide on CEO succession planning best practices point to something similar. Most boards review succession only once or twice a year, and fewer than 40 percent make it a quarterly conversation. Compensation strategy for the next generation of leadership gets the same infrequent treatment, which means it's rarely current when it matters most.

The Same Avoidance Shows Up With High Performers

It isn't only a board-level problem.

Executives avoid direct compensation conversations with their best people for a related reason. Naming what a top performer is worth, out loud, invites a negotiation the executive may not be ready to have. So the conversation gets deferred until a competing offer forces it, at which point the company is countering under duress instead of retaining proactively.

The 2024 Center for Executive Succession, HR Policy Association, and Equilar survey found that boards which treat succession planning as a genuine priority report CEO engagement in 70 percent of cases. Boards that don't prioritize it see engagement drop to 28 percent. The gap isn't about the quality of the leaders involved. It's about whether the conversation happens on a schedule the organization controls, or only in a crisis it doesn't.

Succession planning without a matching compensation strategy is an org chart with hopeful assumptions attached. I've watched organizations spend years identifying a strong internal successor while investing almost no time explaining what that promotion will actually mean in ownership, authority, and long-term reward. Eventually another company answers those questions first, and the successor leaves to learn the answer somewhere else.

Uncertainty of this kind doesn't stay contained to the person waiting for an answer. The Gallup State of the Global Workplace 2025 Report found that global employee engagement fell to 21 percent in 2024, a decline that cost the world economy an estimated 438 billion dollars in lost productivity, driven largely by a steep drop in manager engagement. Gallup's population is the broader workforce rather than the executive suite specifically, but the mechanic holds at any level. Uncertainty weakens commitment.

Where the Avoidance Gets Expensive

Every deal team has a story about the transaction that stalled in the final weeks over something nobody had surfaced early enough.

In the deals that stall, the cause is rarely a mystery in hindsight. Nobody unwound the target's executive equity and change-in-control provisions until the buyer's counsel found them in week nine. Section 280G of the tax code illustrates why this happens. Parachute payments to key executives exceeding roughly three times their average prior compensation trigger a 20 percent excise tax and cost the company its deduction. Deal teams that catch this early can restructure timing. Deal teams that catch it in week eleven are negotiating price adjustments under a deadline.

Compensation due diligence experts describe the fix the same way every time. Bring in the right people early, before the deal has enough momentum that nobody wants to ask hard questions about severance and retention. Private equity buyers add another layer. They typically want senior management to roll over a share of their equity into the new structure, and a team that hasn't had a clear internal conversation about what that equity is worth will negotiate the rollover badly, either accepting too little or holding out in ways that damage trust before the ink is dry.

Belen Gomez, a governance researcher at Equilar speaking on the firm's succession disclosure research, put the underlying tension well. "There needs to be sufficient information to ease shareholder anxiety around the issue - that they have a thoughtful plan in place - without compromising the strategic position of the company." The same balance applies inside the boardroom, long before any shareholder sees a disclosure. Directors need enough clarity to act with confidence. They rarely have it, because the compensation conversation kept getting pushed to next quarter.

Equity Is Not Simply Compensation

Owners tend to think of equity as one more line item. Senior executives rarely see it that way.

To the people receiving it, equity communicates partnership. It signals shared risk and a level of confidence in someone's long-term contribution that a salary number alone can't carry. That distinction matters more than it used to, given how many organizations now compete for talent by offering meaningful participation in enterprise value rather than cash compensation alone. Not every executive needs equity, but every executive should understand the philosophy behind who gets it and why. Leave that undefined and people build their own theory, usually based on comparison and rumor rather than fact.

The Discipline That Changes the Outcome

The organizations that handle this well share one habit. They've made compensation a standing conversation instead of an emergency one.

Nels Olson of Korn Ferry, in the firm's guide on CEO succession planning best practices, describes what that discipline requires in practice. "That means continually assessing internal talent, giving potential successors opportunities to take on new challenges, and ensuring board members see them in action." Notice what's absent from that description. There's no single dramatic meeting where compensation gets settled. There's a rhythm, built well before anyone needs it, one that tends to include the same handful of elements:

• A clearly articulated compensation philosophy that executives understand before a major career decision arrives, not after

• Regular board dialogue about CEO performance, on the calendar regardless of whether the CEO happens to be thriving that quarter

• Long-term incentive plans built around enterprise value rather than a single year's financial target

• Direct language instead of vague references to "market competitiveness" that nobody has actually defined

Plan design matters as much as philosophy. Boris Groysberg, Sarah Abbott, Michael R. Marino, and Metin Aksoy, writing in the Harvard Business Review, made the point plainly. "By aligning executives' financial incentives with company strategy, a firm can inspire its management to deliver superior results. But it can be hard to get pay packages right." When a plan requires an advanced degree to calculate a quarterly payout, it stops motivating anyone.

None of this requires opening every number to every employee. Transparency and confidentiality can coexist, and organizations frequently confuse the two. What executives need is the philosophy guiding decisions, not a spreadsheet of everyone's pay. Leave that undefined and people fill the gap with assumptions that have little connection to reality.

Weigh the cost of building that discipline against the alternative. A board meeting that runs ten minutes longer because directors worked through a real compensation question costs nothing but time. A deal that stalls in week eleven over an equity structure nobody addressed, or a senior leader who walks the month after a competitor's offer landed, costs far more than any awkward conversation ever would have.

What would change in your organization if compensation moved from the item everyone avoids to the one everyone expects?

Where ACG Fits

The organizations we work with rarely arrive with a single, contained problem. A compensation gap that's gone unaddressed for two years is also a succession gap, a retention risk, and often the reason a promising acquisition stalls the moment a buyer's counsel opens the cap table. These issues surface together, usually at the exact moment a company is growing fast, changing leadership, or facing performance pressure that its existing governance structure was never built to absorb. If you're a mid-market or Fortune 1000 executive watching one of these pressures build, a confidential conversation is a reasonable next step. You can start one at https://www.aspirations-group.com.

The Conversation Worth Having Daily

Compensation strategy is one piece of a much larger leadership picture, and it's the kind of topic ACG Strategic Insights returns to often because so few publications treat it with the seriousness it deserves. If you'd like it delivered directly, request a complimentary subscription at https://www.aspirations-group.com/subscription. It's published each weekday for executives who'd rather think through these questions before they become urgent.

Thanks for reading!

~ Jerry Justice

Living to Serve, Serving to Lead™