#United States #Boston #Pearl Meyer #Executive Pay #2026 Compensation

Moderation in Executive Compensation Practices for 2026

As organizations brace for the future amidst economic uncertainties, the latest survey by Pearl Meyer, titled "Looking Ahead to Executive Pay Practices in 2026," reveals a trend of cautiousness in executive compensation strategies. The survey, which encompasses nearly 250 public, private, and nonprofit organizations, indicates that businesses are taking a balanced approach to executive pay, reflecting the challenges of an unpredictable economic landscape.

Key Findings from the Survey

The overarching theme that emerges from the survey is a commitment to stability in pay practices. Amid fears of inflation and regulatory changes, companies are implementing lower projected increases in base salaries. According to the survey data, average salary increments for 2026 are predicted to be around 3.3% to 3.4%, which marks a slight decrease from the previous year's figures. It is noteworthy that while CEOs can expect a 3.0% increase, other executives will experience a marginally higher raise averaging 3.4%.

In contrast, the energy and utilities sectors project the least increase in salaries, averaging just 2.3%. Interestingly, around 19% of CEOs may face salary freezes, while employee salary freezes are expected to be rare, with only 2% anticipated.

Incentive Payout Expectations

Another significant consideration is the forecast for incentive payouts. Most organizations are planning to award some level of payout for both short-term and long-term incentive cycles, especially around target levels. However, the survey also highlights a reluctance to utilize discretion in determining these payouts; nearly half of the companies indicated they won't apply discretionary measures for short-term incentives, and 60% are withholding discretion for long-term incentives.

When there is a necessity to utilize discretion, positive adjustments are more frequently being made for a broader range of employees rather than just executives.

Shift in Focus from DEI and ESG

The survey also raises concerns about the reduced emphasis on Diversity, Equity, and Inclusion (DEI) and Environmental, Social, and Governance (ESG) metrics within incentive plans. A striking finding reveals that only 22% of public companies and 13% of private firms continue to include stand-alone ESG metrics in their compensation strategies. Additionally, approximately 15% of respondents have removed DEI metrics entirely or incorporated them into other performance categories.

The lack of recent additions in DEI metrics suggests a notable change in how companies are addressing nonfinancial performance indicators.

Stability in Succession Planning and Governance

Furthermore, the survey sheds light on succession planning, revealing that CEO turnover occurred at 16% of participating organizations in the past year. Most transitions were planned strategically, correlating with an expected tenure of around 6.25 years—slightly shorter than the current average tenure for CEOs of 6.5 years. The data show that nearly all organizations maintain either strategic or emergency succession plans, underscoring the importance of governance stability in these fluctuating times.

Conclusion

In summary, Pearl Meyer's study reflects a cautious, measured response to the broader economic environment as organizations plan for 2026. By focusing on long-term sustainable designs for executive pay rather than reacting to short-term volatility, companies demonstrate a commitment to stability. While many feel positive about the effectiveness of their current compensation programs, there remains acknowledgment of areas requiring continuous improvement.

For those interested in exploring these findings further, the complete executive summary is available here, along with a full dataset for non-survey participants willing to delve deeper.

About Pearl Meyer

Pearl Meyer stands as a leading advisory partner for boards and senior management professionals, dedicated to fostering exceptional leadership teams that drive long-term success. Offering strategy-focused compensation and leadership consulting services, Pearl Meyer enables organizations to establish a competitive edge and realize substantial value by aligning their human capital with organizational outcomes.