Aligning the CEO and Board Through Compensation

Complementing the guidance of the 2025 NACD Blue Ribbon Commission Report on Building a High-Trust Board-CEO Relationship, this boardroom tool provides practical guidance for implementing Recommendation #1: Delineate board and CEO roles and responsibilities to anchor a strong relationship.

How to use this tool: Compensation committees can use this tool to align with the CEO on compensation by fostering a strategic, value-adding partnership that goes beyond traditional best practices. This involves proactive collaboration and disciplined management of potential hot-button issues, including the CEO’s own compensation.

Discussions around compensation should serve to clarify what the board expects the CEO and the management team to achieve and the appropriate measurements of success. Put differently, these conversations should answer the question: What is the CEO getting paid to do?

Clear conversations will avoid missteps in expectations or unspoken assumptions between the board, the CEO, and the management team. It can also help ensure that the board members are on the same page with each other.

Absent such conversations, compensation can easily become a source of tension between the board and CEO in these dynamic times. Avoiding that tension requires discipline and thoughtful collaboration on the part of the CEO and the board. The compensation committee and the CEO must manage potential hot-button issues on two fronts in particular:

• CEO as Compensation Plan Participant. Managing the negotiations for the CEO’s own compensation and development throughout the CEO’s tenure
• CEO as Compensation Plan Manager. Making compensation decisions for the management team and the organization as a whole