CEO Succession
Pay Planning For CEO Succession
Aligning pay programs with succession planning can facilitate smooth transitions, protect your leadership pipeline and prevent costly, reactive decisions.
More than a third of large organizations are undergoing business transformations at any given time, but only about 12 percent achieve their original ambition. Here’s what goes wrong, and how boards can help.
On the morning of Feb. 3, 2026, PayPal’s board did what boards rarely do cleanly or quickly: they pulled the plug on their chief executive. Alex Chriss, brought in two years earlier to transform one of the world’s most recognizable fintech brands, was out. His replacement—HP’s Enrique Lores, PayPal’s board chair—was in. And by the time markets opened, PayPal’s stock had dropped nearly 20 percent as investors digested not only a CEO change, but a disquieting verdict: the transformation hadn’t worked.
Research on corporate transformation outcomes continue to surface the face that most transformations hit, at the very least, similar rough patches. A recent Bain & Company study found that while more than a third of large organizations are undergoing business transformations at any given time, only about 12 percent achieve their original ambition. The causes for failure vary, but one thread runs through nearly every postmortem: By the time the board acts, the window for a graceful correction has long since closed. Somewhere between the roadmap and reality, the board loses the thread.
The governance failure hiding inside most transformation disasters is a board that signs off on a vision and then waits for results, when what’s actually needed is sustained, disciplined engagement with the messy, nonlinear, organizationally resistant process of getting there. “Transformation tends to surface which kind of board you have,” says Bill Flynn, CEO of Catalyst Growth Advisors, a consultancy. “Oversight boards monitor whether the transformation is on schedule. Stewardship boards ask whether the organization is learning to operate differently. One of those questions tells you whether a plan was executed—the other tells you whether anything changed.”
In interviews with five sitting directors who have steered companies through transformations of every kind—digital overhauls, business model pivots, workforce redesigns—a handful of hard-won principles emerge about what that oversight actually looks like, and what it costs when it’s absent.
Before a board can oversee a transformation effectively, it needs a clear-eyed answer to the most basic question, says CeCe Morken, a director at Wells Fargo, Genpact, and DailyPay who has led digital businesses from the operating side. “What customer problem are we solving? Even if it’s an internal change, like implementing a new enterprise system, the customer is the employee. So with anything, I’m always: what problem are we solving, and how do we know we can build a durable advantage?”
Cynthia “Cindie” Jamison, chair of the board of Darden Restaurants and chair of the audit committee for International Flavors and Fragrances frames the threshold question this way: “What is it we’re transforming from and what do you think we’re transforming to—and why? What research backs this up, what data backs this up?” she says. “The discussion needs to be teased out, and it can’t be emotional; it needs to be anchored in data.”
That discipline is harder to maintain when a compelling CEO is doing the pitching. Jamison recalls a situation where a generally excellent and highly innovative CEO kept generating “bet-the-farm” transformation ideas. “It took us a while to recognize that we needed to delve deeper into the why and the what,” says Jamison. “Many CEOs got to be CEO because they’re good storytellers. They can sell it and it all hangs together and you’re like, ‘wow, that sounds really exciting.’ But then hundreds of millions of dollars later, you realize, that doesn’t seem to be working.”
Getting specific about success means pushing management on metrics from the outset. Jamison identifies three non-negotiables. First, pick milestones that mark not the ultimate goal, but progress along the way. “You don’t say, ‘We want to grow revenues by a billion dollars.’ You say, ‘We want to see an uptick in revenues within two quarters.’ You’re trying to see if you’re making progress and getting traction quickly.” Second, in turnaround situations, consider focusing on liquidity rather than GAAP earnings. “Cash doesn’t lie,” she says.
Third, the quality and frequency of reporting to the board must increase. “You’re not trying to kill management with a bunch of reports,” she says, “but in transformations, it always makes sense to agree on those short and intermediate-term metrics, create a dashboard of the five, six, seven things you want to track, and send it out to the board every month. You don’t wait for the quarterly meetings. Everything has more immediacy.”
Continued board focus is critical, says Idie Kesner, Dean Emerita and professor of strategic management at Indiana University’s Kelley School of Business, and a director on multiple public company boards. “The worst thing the board can do is have a ‘drop the mic’ moment—’okay, we made our decision, now we don’t have to keep it on the agenda.’ Keeping updates going and checking to make sure that the metrics that you set and the timing you set are within balance—all of that is incredibly important.”
Aligning pay programs with succession planning can facilitate smooth transitions, protect your leadership pipeline and prevent costly, reactive decisions.
Last year marked yet another high in global CEO departures, according to the Russell Reynolds Associates’ Global CEO Turnover Index, with turnover rates up from both 2024 and long-term averages. That steady climb in turnover signals an operating environment in which leadership transitions are more frequent and less predictable. For boards, this new reality, in turn, has been highlighting the critical role executive compensation plan design can play in enabling smooth leadership transitions.
In the aftermath of a sudden departure—whether due to a CEO resignation, a strategic reset or a board decision—the absence of a clear plan quickly spills into the compensation arena, says Matt Lum, a managing director at FW Cook. “I’ve seen many event-driven situations where poor succession planning led companies to take reactive actions that created external risk.”
Boards may feel compelled to issue emergency retention awards to stabilize the leadership team or offer large sign-on and buyout packages to recruit an external CEO. Such moves can then trigger governance concerns and internal equity issues that might have been avoided with more deliberate planning.
Diane Gherson, former CHRO at IBM and now an independent director at The Kraft Heinz Company, Centivo and Techwolf, argues that the biggest cultural mistake is treating transformation as something done to employees—even if unintentionally. “Think about how people operate in their personal sphere—they’re on Instagram, they’re posting, they’re getting feedback all the time. And now they’re at work and they get this one-way communication: ‘We’re doing transformation.’” You can’t just market transformation to your employees—you actually have to involve them, she says. “Take their feedback and have tons of feedback loops. That way they feel like it’s their transformation.” And don’t overlook the importance of having middle management in your corner. “Middle managers are in a perfect position to bring the transformation down to earth for people. If you can get them on board, they become your best foot soldiers.”
If you ignore them, you risk sabatoging the entire process, says Eric McNulty co-author of You’re It: Crisis, Change, and How to Lead When it Matters Most and Associate Director at Harvard National Preparedness Leadership Initiative, who recommends boards engage well beyond the executive team. “Never underestimate the potential for senior leaders to create blind spots by failing to engage people closest to the work and the customer.”
To help with this, Gherson pushes management to segment their people data rather than just presenting aggregate scores. She recounts a board situation where management presented above-average engagement numbers, but she could not reconcile that data with the Glassdoor reviews she’d been reading.
“Finally, I asked the question: does this survey include your blue-collar workers? [They said] ‘Oh, no—it’s really hard to get them because they’re not on laptops,’“ she recalls. “All these years the board had been looking at this data that hadn’t included the blue-collar workers—who, of course, were critical to this particular transformation.” She recommends boards ask for differences on engagement scores between employee demographic groups or between senior managers and middle managers. “Those are the questions that get at whether you’re actually bringing everyone along.”
She also presses boards to ask about the operating model directly. “Will decisions be made differently? Will you have fewer handoffs? In what ways will this improve customer satisfaction or speed to market?”
Ben Perreau, CEO of Parafoil, which creates technology to measure leadership performance, agrees, noting the board’s biggest mistake is often tracking milestones instead of behavior. “Boards ask whether the reorg is complete or the new system is live, when the real question is whether frontline managers are leading their teams differently,” he says. “Transformation either shows up in how a manager runs a Monday morning 1:1 or it doesn’t show up at all. Most boards never look that far down the line, which means they’re the last to know when things aren’t landing.”
AI isn’t just changing what companies do. It’s dismantling how they’re built—and boards need to govern the redesign.
If you pull up a list of the 10 largest companies in America from the year 2000, you’ll see names like General Motors, Walmart, ExxonMobil, Ford Motor, General Electric. Of that original group, only Walmart and ExxonMobil still hold top-ten positions today. The rest were displaced, absorbed or simply outgrown by agile, adaptable competitors that either didn’t exist yet or were barely known at the turn of the century.
It’s tempting to ask: Isn’t AI just the latest disruption trigger?
Not quite. The pace of change that AI represents is qualitatively different from previous cycles of disruption—not because the technology itself is unfamiliar, but because of what it demands of organizations. AI isn’t just asking companies to do the same old things but faster; it’s asking them to be fundamentally different in ways that have significant implications for how boards think about their oversight responsibilities.
Louisa Loran, who launched a billion-dollar supply chain solutions business at Google, and currently serves on the board of CataCap Private Equity, says the greatest governance risk during transformation is the gap between outside expectations and inside reality. “If boards unintentionally create pressure that makes it difficult for management to surface friction or failed assumptions, the board ends up governing a polished narrative rather than the transformation itself.”
Instead, create room for problems to surface, and notice when things look off. For Morken one of those early warning signs is when answers are too polished and every metric is on track.
“When I see a dashboard and everything’s green, I get very suspicious,” she says. “The CEO who wants to explore shows me they’re a learner. I don’t want the person who has all the answers, because that means they can’t be surprised.”
In two cases where Morken has been part of replacing a CEO mid-transformation, the pattern was consistent: dashboards looked acceptable quarter after quarter, but the explanations for slight misses kept shifting. “‘Maybe we’re a little behind in Q1, but we’ll catch up in Q2.’ You see that trend a couple of quarters and the red flag is there—either you don’t have a handle on this, or you’re not being transparent with us.”
She values CEOs who use board time to surface problems rather than demonstrate control. “I respect a CEO who comes to the board meeting and says, here’s what I’m struggling with and where I’d really like your help.”
Getting an independent read on where things stand—without undermining the CEO—also requires building relationships throughout the organization before they’re needed. Morken describes regular one-on-ones with chief product officers and chief revenue officers, conducted openly with the CEO’s knowledge. “If they seem uncomfortable—like they’re not supposed to share this—I’m going to pick up on that. That’s a signal that they’re being asked not to tell us things, or they haven’t told the CEO yet. Either way, that’s something I want to understand.”
Independence between the board and CEO is a must, says Carissa Rollins, a retired global CIO who now serves on the board of Accendra Health. She recalls a situation where a tech-driven transformation was failing and the CEO and board chair were a little too friendly. “That made it very difficult to make the suggestion that maybe we needed a different CEO.”
Communication during disruption is not simply a management function but a governance responsibility.
Periods of disruption have become a defining feature of the modern corporate environment. Volatile markets, expanding regulatory scrutiny, shareholder activism, rapid technological change and geopolitical uncertainty have increased the frequency and the intensity of corporate shocks. Whether the trigger is earnings miss, a cyber incident, a strategic pivot or an activist campaign, disruptive events now unfold quickly.
In these moments, stakeholders—including investors, regulators, employees, customers and the media—expect timely, clear and consistent communication. Silence or inconsistency can quickly undermine confidence and damage credibility. As a result, boards are placing greater emphasis on oversight of stakeholder engagement and messaging, recognizing that communication during disruption is not simply a management function but a governance responsibility.
One of the quietest ways a transformation fails is through compensation structures that were never updated to reflect what the organization is actually trying to become. The board approves the strategy, but the comp committee leaves the incentives exactly where they were. “Compensation that still rewards individual heroics during a transformation designed to build collective capability is a design problem,” says Flynn.
Rather than waiting for financial results that may take years to materialize, Gherson advocates for building “signposts of success” into executive incentive structures—operational outcomes like NPS scores or customer retention metrics that indicate the transformation is taking hold before the bottom line reflects it. “It’s not a financial metric you can audit on a financial report, but the board will look at it and decide, yes, that’s a good signpost that we’re on the right track,” she says. “Maybe 10 to 30 percent of an incentive can be based on these milestones—operational outcomes, not activities.”
Every board eventually faces the moment they hoped to avoid: a transformation that is visibly off track. The CEO is still presenting as confident, and the board must decide whether to press harder, restructure the effort or call the whole thing.
Jamison frames the central question plainly. “Is this just not working yet? Or is this not working, period? That’s a pretty hard conversation to have.” She sees the chair’s role as pivotal. “So much of this is really for the chair to direct the conversation in a healthy manner—everybody is heard, everybody’s viewpoints are expressed, but the decisions are clear. And they’re not afraid to have the courageous conversations. If you don’t have a good chair, this stuff can really blow up.”
Rollins advocates for a dedicated executive whose role is substantially the transformation itself. “It can’t be a part-time role for the CFO and a part-time role for the COO. If it’s important enough, it should be almost a full-time role, and that person should be at the full board meeting, talking through the transformation.” That way, the board has an opportunity to dig into the details when things go sideways.
But as difficult as it may be for those directors who have been on the operational side of transformation, says Jamison, you must keep fingers out. “You approved someone else to do it their way. Support them.”
And they will need that support. Kesner tells the story of a CEO she once worked with who had just committed capital equal to his entire company’s worth to an unproven technology, essentially betting the farm on a transformation no one could fully predict. When asked how he was sleeping at night, he replied, “I sleep like a baby—I wake up every hour and a half and cry.”
“Transformations are hard,” says Kesner. “He was saying, ‘Heck yes, I’m nervous. But we still had to do it.’”
How board members can guide sustainable, human-centered organizational change.
Change efforts fail more often than they succeed. Not occasionally. Not under extreme conditions. Not without warning or explanation. They fail routinely and often. Companies continue investing trillions in change initiatives, yet outcomes largely remain unchanged. Unsuccessful change efforts aren’t just inefficient; they’re a waste of human potential, leaving organizational scar tissue that diminishes both appetite and capacity for future adaptation.
However, transformation doesn’t have to be a gamble. In How Change Really Works (Harvard Business Review Press), authors Julia Dhar, Kristy R. Ellmer and Philip Jameson reveal how mastering the five phases of transformation empower leaders to significantly boost the odds of sustainable success.