Currently, companies are seeking a balance between short-term risks and long-term returns, a challenge that is prompting many organizations to re-examine their executive compensation strategies, including the design of incentives and other reward-based pay.

According to a recent survey by consulting firm Korn Ferry of HR executives and leaders, about half of respondents (46%) have initiated internal discussions to adjust annual incentive compensation in response to economic uncertainty. Another 55% of respondents said they are taking a "wait-and-see" approach to how tariffs will affect their incentive compensation plans, according to the Global Total Rewards Pulse Survey.

In an uncertain economic environment, when companies develop incentive and compensation strategies, decision-makers need to "understand the relationships among roles in the leadership team," and the Chief Financial Officer (CFO) can provide key insights in this regard, said Ron Seifert, Korn Ferry's North America leader for workforce rewards and benefits.

In an interview, Seifert noted that when analyzing incentive plans, those designing them need to consider how to measure company performance and "honestly assess whether these measures align with long-term strategy and interests." He emphasized that while he does not want the CFO to represent only their own interests, the CFO "has a unique perspective on many matters and can provide insights to the CEO and board on multiple fronts."

Asking New Questions

As companies navigate economic challenges—including ongoing changes in tariff policies, interest rates, and the labor market—they are placing greater emphasis on optimizing compensation strategies and increasing pressure on CFOs to provide solutions.

The Korn Ferry survey found that ongoing uncertainty "poses challenges for organizations in planning and allocating financial resources," and therefore, "planning and budgeting processes may be more dynamic than in the past."

Despite the uncertainty, the survey, which covered 132 countries and 3,880 participants, found that most respondents expect their compensation outlook to remain relatively stable in the short term. However, the results show that "there is greater interest in the relationship between executive compensation and organizational leadership costs," Seifert said.

"I think boards are asking different questions, so there is more focus on... 'Have we benchmarked all positions?'" he said. "'Does the pay we provide match the standards, strategy, and expectations for these individuals?'"

The survey showed that 44% of respondents said they "likely" would consider changing their CEO benchmarking methods. In setting compensation levels, 53% of respondents believed there was a "fairly significant" alignment between CEO pay levels and performance feedback, while 27% believed there was a "significant" alignment.

Compensation as Roles Evolve

As the relationship between performance and incentives continues to draw attention, companies also need to consider how this relationship changes as executive roles themselves evolve. For example, the CFO role today is increasingly expanding in scope, with companies such as Salesforce and PayPal having announced the combination of CFO and Chief Operating Officer (COO) roles.

Seifert said such combined roles are "inherently larger than a single role," so "the question is, how do you accommodate that in compensation levels and design?" He said: "This is a fundamental question the board needs to ask itself."

He also noted that organizations tend to design executive roles to "accommodate long-term succession planning and development," making it essential for companies to find the right compensation mix to ensure that newly developed executives are not poached by competitors.