Introduction

One important responsibility of the Compensation Committee of the Board of Directors is to select performance metrics and set goals for company incentive plans in which senior executives and the broader employee workforce participate. The incentive plans are intended to motivate executives to execute and deliver goal-based results which are often tied to the company strategic business plan. Macroeconomic factors and/or industry wide instability may cause uncertainty and difficulty in setting performance goals for short-term incentive (STI) and performance-based long-term incentive (LTI) plans. Goals that are not set appropriately could lead to incentive plan payouts that are misaligned with shareholder experiences and/or demotivation of employees if plans consistently result in no payout. Companies facing challenges in goal setting may consider adopting less traditional, more flexible approaches to incentive design as discussed in our earlier Viewpoint “What You are Likely to Hear in the Boardroom”, which covers key developments facing Compensation Committees for the 2025-2026 cycle. Possible design considerations include:

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