CEO’s Role in Executive Compensation Design

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 making compensation decisions for the management team and the organization as a whole throughout the CEO life cycle. The life cycle encompasses CEO onboarding, a comprehensive annual review process, managing through meaningful changes to the organization, and preparing for a CEO transition.

The CEO is in the unique position within the management team of being able to put their “fingerprints” on compensation program direction and design and ensure it aligns to the organizational goals. To do this effectively, the CEO must develop a different, deeper understanding of compensation design and structure than can be acquired simply from being a participant in the programs—or even managing the implementation and oversight of programs that have been designed by others.

In particular, the compensation committee should quickly address two broad areas:

• Learn what the new CEO already knows (or does not know) about the structure of the company’s compensation plan. (Boards may be surprised to learn that the background rationale, strategy, or historical issues are not always readily apparent to a new CEO, even one who has been promoted from within.)
• Effectuate the CEO’s involvement beyond simply the background and mechanics of the plan, so that ongoing conversations can be structured around firm-wide priorities.