Proportion of directors who say recent CEO departures at prominent companies has raised risk awareness inside their own boardrooms
Directors are divided as to the importance compensation plays in retaining the CEO
Proportion of directors who say they would be willing to take a one-year low SOP vote for a special award that would help them retain the CEO
The high level of turnover among public company CEOs has prompted new conversations inside U.S. boardrooms, our data found. Nearly two-thirds of directors serving on the board of large companies ($1bn + in market capitalization) said the events of the past couple of years have sparked new conversations within their board, with 46 percent saying the full board now takes part in those discussions. Only 17 percent say the conversations remain within the confines of the committee overseeing succession planning.
While slightly fewer directors at smaller organizations responded in the same manner, the majority (51 percent) nevertheless reported that they, too, had engaged in new conversations about the issue—an indication that the problem affects companies as a whole, regardless of size.
Traditionally, a board’s duty is to oversee the CEO’s succession planning; the succession plan of other senior executives is typically a management responsibility. But surveyed directors reported the boards had greater concern over the turnover risk of those individuals below the CEO.
At large companies, those concerns over unplanned departures are primarily found one level below the CEO—within the CEO’s direct reports—and one to two levels below that. The proportion of directors who consider these groups at risk rose in 2024 from when we asked the same question in 2023, up 13 and 10 points respectively year over year, to 52 and 53 percent.
At smaller companies, boards’ concern trickle even below that, to employees below the executive level. Across all company sizes, 28 percent of directors said they shared concerns about the level of unplanned turnover across the non-executive workforce—up from 15 percent in 2023.
Interestingly, only 6 percent of directors at large companies and 5 percent of directors overall said they considered their CEO at risk of leaving abruptly, without prior notice. That proportion is down 2 and 6 points, respectively, from 2023.
Many boards and/or committees focus on CEO succession. But data shows that succession issues and retention concerns cascade down well below the CEO level. Boards that want to get ahead of a potential talent gap should ensure that in addition to planning the CEO succession, a committee also oversees succession 2 or 3 levels below that.
Boards need to be prepared for the unlikely scenario, and when asked what their first move would be if the CEO were to suddenly depart, nearly half said they would appoint an internal candidate marked for succession.
But that strategy entails that this candidate is not only ready to step into those shoes but also still well-anchored within the company—not with an eye toward the door. Retaining mission-critical individuals and top performers is vital to the strategic plan, and compensation is a key part of that staying power.
Exactly half of all directors polled said offering the right compensation package is critical to retaining the CEO, and 57 percent said the same for members of the C-Suite. Those numbers are consistent across size groups, though smaller company boards tend to put more weight on compensation for their senior executives than their larger counterparts (69 percent vs. 51 percent).
Compensation plays a necessary but insufficient role in retaining key talent. In other words, compensation isn’t the only tool in the toolkit. Job roles, corporate culture, career path, and realizable pay (based on performance) also are powerful retention motivators.
Boards and committees should not overemphasize the importance of compensation in retaining key talent, says Farient CEO Robin Ferracone. “Boards need to think broadly about retention mechanisms and make use of all the tools in the toolkit. For example, compensation committees should routinely review the talent and succession plans, and if appropriate, link compensation to the succession map.”
Boards and committees need to also connect with the CEO and others who are 1 to 2 levels below the CEO, as appropriate, to understand their motivations as well as their feelings about their personal prospects within the company.
Most directors survey said they would consider special award if it meant retaining their CEO. Three out of five said they have either considered making a special award or have made one. (The numbers were consistent across size groups.)
Among the reasons for considering the special award for their CEO, 58 percent said an extraordinary performance, and 32 percent said to retain the individual or counter an outside offer.
Our data shows this practice goes beyond the CEO: 70 percent of those who use compensation as a retention tool also give special equity grants to their succession candidates. (The numbers were consistent across size groups.)
Interestingly, when asked why the boards that had considered a special award had opted against it, 57 percent said they were concerned about investors and proxy advisors’ reaction—and 21 percent said they were also concerned about employees’ reaction.
Still, despite shareholder scrutiny on matters of compensation, most of the directors we surveyed approve of special accommodations, when warranted, even if they can put a say-on-pay vote at risk.
Proxy advisors and investors typically object to one-off exceptions and surprises in the pay system. This is because these actions often weaken pay and performance alignment. Committees should therefore think about how retention mechanisms can be built into the normal ongoing pay program and how they can be configured to strengthen pay and performance alignment. Such programs would then be disclosed as the normal way in which the company does business.
Committees should also consider developing a policy around one-time awards covering such items as their frequency, their magnitude, and the use of performance conditions, among other items. The company should then disclose its policy and demonstrate how any one-time awards that are made comport with its policy.
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Chief Executive Group exists to improve the performance of U.S. CEOs, senior executives and public-company directors, helping you grow your companies, build your communities and strengthen society. Learn more at chiefexecutivegroup.com.
Farient Advisors LLC is an independent premier executive compensation, performance, and corporate governance consultancy. Farient provides a full array of services linking business and talent strategy to compensation through a tailored, analytically rigorous, and collaborative approach. Farient has locations in Los Angeles, New York, and Louisville, and works with clients globally through its partnership in the Global Governance and Executive Compensation (GECN) Group. Farient is a certified diverse company and is recognized by the Women’s Business Enterprise National Council.
Chief Executive Group exists to improve the performance of U.S. CEOs, senior executives and public-company directors, helping you grow your companies, build your communities and strengthen society. Learn more at chiefexecutivegroup.com.