In the current business landscape, a well-structured executive compensation plan is more than just a formality; it’s a critical tool for hiring and keeping top-tier leaders. An effective plan aligns executive pay with your company’s strategies, which in turn can improve both individual and organizational performance. However, maintaining these plans is a complex task due to shifting environments and new trends.
Compensation leaders should continuously evaluate their programs, adapt to new business goals, and adjust to emerging trends to ensure a win-win for both the company and its executives. With the remainder of 2025 in sight, let’s explore five key trends shaping executive compensation.
1. Equity Plans Are Evolving
Equity, long-term incentives, and deferrals are vital parts of a compensation package, encouraging leaders to invest in a company’s sustained growth. While these were once exclusively for senior executives, their use has broadened to include middle management and other in-demand roles.
“Receiving equity as an entry-level employee fosters a culture of ownership within your organization if handled correctly,” says Mikael Silegren, HRSoft’s Senior Director of Product Management.
However, this widespread use can dilute the value of the perk and significantly increase the administrative burden. As a result, some organizations are re-evaluating who is eligible for equity grants due to the added overhead and decreased value.
2. Vesting Schedules Are Shortening
Vesting is the process by which an employee earns benefits like stock options or retirement contributions over time. It’s a powerful retention tool, as employees lose unvested benefits if they leave. While traditional plans might require a three-to-five-year period or a graduated five-year schedule, companies are now shortening and increasing the frequency of vesting schedules to appeal to a more mobile workforce.
This change is driven by a new generation of employees who expect real-time, instantaneous value. But this shift comes with a potential drawback for the company. As Glizcel Ditto, Executive Director of Client Solutions at HRSoft, explains, “The accelerating vesting almost borders between short-term and long-term incentives,” which may prevent companies from rewarding executives for their long-term vision.
3. Measuring Performance in a Volatile World
Tying executive compensation to company performance becomes complicated when external factors like macroeconomic headwinds, political instability, or tariffs impact success. These unforeseen events necessitate a more flexible approach to performance metrics.
To address this, many organizations are adopting performance scorecards with a broader range of key performance indicators (KPIs). Mikael Silegren notes, “You may be measured on five or more metrics, each evaluating different aspects of your role, your team, and the business.” These scorecards can be customized to the individual and allow for different weights to be assigned based on an executive’s ability to influence outcomes.
4. Stronger Ties to ESG Goals
There is a growing link between executive compensation and environmental, social, and governance (ESG) objectives. Executives are now increasingly held accountable for their company’s social and environmental impact. Investors and the public are demanding more transparency and want to support companies that reflect their values. In fact, in 2024, 58% of S&P Composite 1500 Index companies included ESG metrics in their CEO’s performance evaluation, which is more than double the percentage from 2019.
5. The Need for Continued Communication and Education
A significant gap often exists between an executive’s perception and the reality of their total compensation. Many executives focus only on their salary, overlooking the value of short-term bonuses, equity, and other perks.
“A once-a-year paper statement doesn’t cut it anymore; it’s about creating an ongoing experience where you can continually engage, educate, and motivate your employees throughout the year,” Silegren advises.
Glizcel Ditto agrees, emphasizing that even the most generous plan won’t have the intended effect if executives don’t understand their rewards. Solutions like HRSoft’s compensation management platform offer total rewards self-service portals to help leaders understand their potential rewards and connect them to company goals, which is critical for them to grasp the full value of their compensation.
Purpose Is the Foundation
With these evolving trends and complexities, a clear purpose is the foundation of any effective executive compensation strategy. To stay competitive and keep your executives invested, your plan must be adaptable and communicate clearly when and how they will be rewarded.
To learn more about these trends in Executive Compensation, download the ebook Executive Compensation in 2025: Aligning Strategy with Emerging Trends.
