Leadership
How Much Should a CEO Really Be Paid?
How much should a CEO be paid—and who decides? Discover the influence of NRCs and CHROs in shaping leadership, pay, and company culture.
April 30, 2025
The Untold Role of NRCs and CHROs
In the boardrooms of leading companies, decisions about who leads and how they’re compensated are among the most critical—and often controversial—choices made. Behind closed doors, Nomination and Remuneration Committees (NRCs) guide these decisions, ensuring they are strategic, fair, and aligned with long-term company goals.
At the core of their responsibilities are two key tasks: determining executive compensation and overseeing leadership succession, particularly the selection of CEOs and other senior leaders. These decisions have a far-reaching impact—not only on the company’s future but also on its culture, stakeholder trust, and corporate governance.
As Sushant Upadhyay, Senior Client Partner at Korn Ferry, who has spent years helping organizations in the Middle East refine their governance strategies says: “These topics are highly sensitive. How much should the CEO be paid? How do you decide the right incentives for your executives? These are questions that often stir conflict, particularly because they involve the very people making the decisions.”
For NRCs, these decisions are often controversial because they involve navigating delicate issues of fairness and alignment with company performance. However, these are also the decisions that ultimately define the future direction of the organization and the strength of its leadership.
Best Practices for Effective Leadership Selection and Compensation
To make these decisions more transparent and aligned with company values, NRCs can follow these best practices:
- Establish Clear Leadership Criteria: Define transparent and consistent criteria for executive roles to ensure leadership decisions are based on merit, cultural fit, and strategic needs.
- Regular Performance Reviews: Conduct ongoing evaluations of executive performance, tied to measurable outcomes, to ensure leaders are executing the company's strategy effectively.
Incorporate Stakeholder Feedback: Engage senior leadership, employees, and shareholders to get diverse perspectives on what makes a strong leader and to ensure decisions are aligned with company priorities.
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The CHRO's Role in Balancing Advisory and Governance
One of the most complex dynamics in the governance process is the role of the Chief Human Resources Officer (CHRO). As the bridge between the leadership team and employees, the CHRO has an intimate understanding of organizational culture. However, their role in executive compensation and succession planning is delicate. Not only do they advise the NRC, but as senior executives themselves, they face potential conflicts of interest.
Upadhyay explains, “It’s not about the CEO having the final say. It’s the NRC that holds that power, particularly when it comes to determining the compensation and future of the CEO and their peers. That’s where clear governance is absolutely essential.”
To maintain objectivity and transparency, the CHRO should:
- Report Directly to the NRC: To avoid conflicts of interest, the CHRO must report to the NRC for advice on executive compensation and succession planning, rather than the CEO.
- Champion Fair Compensation Practices: Help the NRC design equitable and competitive compensation structures that align with company performance and market standards.
- Promote Leadership Development: Ensure long-term leadership growth by identifying and nurturing internal talent, building a pipeline of future leaders for the organization.
Upadhyay stresses the importance of ongoing leadership development. "Governance isn’t just about reacting to leadership changes. It’s about being proactive and building structures that ensure the company is ready for future transitions," he says. Succession planning should be an ongoing process, ensuring that leaders are nurtured and prepared well in advance for key roles.
For strong governance, NRCs should also:
- Plan Succession Early: Succession planning should be a continuous effort. Identifying future leaders ahead of time ensures smooth transitions and secures the company’s long-term success.
- Ensure Equity in Compensation: Regularly review executive compensation to maintain fairness and alignment with company goals, ensuring leaders are rewarded for performance and contribution.
- Encourage Transparency: Clear communication of the leadership selection process builds trust within the organization, preventing controversies around executive decisions.
Upadhyay concludes, “The influence of the NRC and CHRO may often be behind the scenes, but it is undeniable. They shape the leadership teams that guide organizations toward success, ensuring that these decisions are made with integrity and foresight.”
Want to know more? Learn more about Korn Ferry's executive compensation and benefits offerings today.
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