Executive remuneration: From compliance to competitive edge
19 January 2026
Executive pay isn't just a technical governance issue any more – it is a strategic imperative. In an environment of economic volatility, heightened stakeholder scrutiny, and divergent ESG expectations, remuneration frameworks are under the microscope. Boards that treat pay as a backwards-looking compliance issue risk reputational damage, shareholder dissent and misaligned incentives. Those that get it right can reinforce trust, drive sustainable performance, and position their organisation for long-term success.
Two imperatives dominate the 2026 agenda. Boards would be well advised to view neither in their rear-view mirrors.
Sharpening pay-for-performance alignment
Directors must ensure that reward structures genuinely reflect value creation – not short-term market swings or opaque metrics. Expect investors and proxy advisers to challenge incentive plans that fail to demonstrate a clear link between executive outcomes and strategic delivery. Practical steps include setting performance targets that are ambitious yet credible, embedding transparent disclosure on how outcomes are determined, and stress-testing incentive design against scenarios of economic uncertainty.
Responding to shareholder activism
"Say-on-pay" is no longer a procedural voting process; it is a governance flashpoint. Falling below the 80% support threshold commonly signals investor concern and can trigger reputational risk, media scrutiny, and even regulatory consequences. For instance, in Australia, the two-strikes rule remains a stark reminder: ignore shareholder feedback and Boards face the prospect of a "spill" – where the entire Board (except the managing director) must stand for re-election. Globally, expect heightened engagement demands, with investors seeking clarity on rationale and responsiveness to prior dissent. Boards that fail to act risk eroding confidence and destabilising continuity.
Here's the bottom line: remuneration is a proxy for corporate values and resilience. In 2026, Boards should move beyond defensive compliance to proactive stewardship – designing pay frameworks that incentivise sustainable growth, reinforce accountability, and withstand scrutiny across jurisdictions. Done well, executive remuneration becomes more than a governance obligation; it becomes a competitive differentiator.
