For CEOs and executive teams worldwide, the first half of 2025 will be remembered most for mounting economic instability, rising geopolitical tensions and unpredictable policy shifts from the new administration.
Amid this turbulence, business leaders have been tested — not just in navigating uncertainty, but by being tasked with operating a business while facing intensified scrutiny from shareholders who are examining every decision.
But they're not just examining, they are expressing their views by voting on executive compensation packages thanks to "say on pay," which is part of the Dodd-Frank Act introduced in 2008. While the final votes are nonbinding, say on pay gives shareholders the platform to voice their sentiment, hold the board accountable, spark dialogue and even influence future decisions.
In strong markets, these votes are far less contentious. In fact, a healthy stock price alone may be enough to earn shareholder support in the form of a passing vote. But when shares underperform, even high-performing CEOs can find themselves on the wrong side of a negative vote. This presents a real challenge: how do you prove to investors, including activist investors, that the CEO is delivering value and the compensation committee has sufficiently aligned executive pay with company performance?
This is when the accounting team can become a CEO's best friend.
Accountants are the stewards of the company's most trusted financial data and can tap into this information to help the business deliver transparent, data-driven insights that provide a real indication of the CEO's value.
Forward-thinking companies are aligning accounting teams with the businesses' compensation committees, which comprise independent directors from the boards of directors. Reporting directly back to their boards, the committees are responsible for approving executive pay programs and target levels, in conjunction with reviewing the Compensation Discussion and Analysis and executive pay-related disclosures in the proxy statement.
Accounting brings a level of experience in areas such as performance measurement. More specifically, it conveys vital information about the business's compensation plan, including the metrics used and the rationale behind all decisions. This helps ensure that a clear line exists between executive pay and company performance while also supporting regulatory compliance in conjunction with shareholder trust.
Companies consistently earning high say on pay votes have shifted away from only using narrative summaries or outside consultants to make their key points. This is where an accounting team's data can help. Financial reporting relies on good data to enhance regulator and investor decision making. Following this same logic, the accounting team can help to ground its disclosures in objective, defensible numbers while also helping in the following areas:
Refining and adjusting performance metrics
Companies may rely on the same metrics from one year to the next when communicating executive pay decisions, especially if their business model, stage of growth or competitive strategy have remained static. While leveraging the same data each year doesn't pose an issue, it is imperative that companies justify their use of these metrics to ensure they are accurate measurements of business performance. When synced with leadership, accounting can ensure all performance goals align with shareholder value creation. In a challenging economic climate, consider alternative or nonfinancial metrics, such as strategic and operational goals, which are calculated to deliver value in the future and can help drive investor confidence in the company's direction and its future prospects.
Benchmarking regularly
Another effective method for communicating executive compensation is to compare it against relevant peer groups. By demonstrating that compensation packages are competitive, yet not excessive, companies can mitigate criticism.
Strengthening internal controls
During downturns, financial reporting pressure can increase, making it important to bolster internal controls around pay-related data. For example, accounting can establish and monitor approval workflows for payroll changes and bonuses. They can also regularly reconcile payroll records against timesheets, contracts, and tax reports to quickly spot discrepancies.
Implementing continuous monitoring and forecasting
While for most companies, say on pay votes occur annually (some businesses conduct voting every two or three years), it's important for accounting to monitor executive pay and performance metrics throughout the year, using real-time data to identify potential issues, such as pay misalignments. This will give leadership the chance to avoid potential end-of-year surprises and investor concerns.
Providing digestible context and justification
When executive payouts are high during periods of market decline, it's important for companies to explain their pay decisions clearly and credibly. Since many shareholders are not financial experts, accounting can provide easy-to-digest, data-driven visuals, charts and comparisons that effectively demonstrate how compensation supports long-term performance and strategy.
For executive leadership, business as usual has never been more challenging or closely scrutinized by investors. The key is to integrate the accounting team with the compensation committee. In doing so, companies can better communicate decisions around executive compensation, proactively assess these figures before any votes are cast and ultimately improve shareholder perception and say on pay outcomes.
