The Board’s Role in CEO and Director Compensation
Summary
This CAP analysis of the 110 largest S&P 500 companies (top 10 by market cap in each GICS sector) examines who approves CEO pay and who oversees non-employee director compensation. Practices vary: 26% of companies require full-board approval for CEO pay, 72% vest final approval in the compensation committee, and 2% use a hybrid model. For director pay, 57% assign oversight to the compensation committee, 41% to the nominating/governance committee, with the full board retaining final approval in 97% of cases. The piece outlines trade-offs between accountability, expertise, efficiency and optics, and offers practical considerations for boards when setting committee responsibilities.
Key Points
- 26% of sampled companies require full-board approval for CEO compensation; 72% give final authority to the compensation committee; 2% use a hybrid approach.
- For director pay oversight, 57% place responsibility with the compensation committee and 41% with the nominating/governance committee; the full board usually gives final sign-off (97%).
- Full-board approval for CEO pay emphasises accountability and collective judgement but can be slow and may involve directors less versed in compensation technicalities.
- Compensation-committee approval brings efficiency and technical expertise, but can raise optics and inclusiveness concerns and concentrates reputational risk.
- Assigning director pay to the nominating/governance committee aligns compensation with governance, board roles and recruitment needs, but may lack the specialised benchmarking expertise of compensation committees.
- Boards should weigh investor expectations, committee expertise, board composition and workload when deciding where approval authority sits, and disclose rationale clearly to stakeholders.
Context and Relevance
The article is important for boards, company secretaries, investor relations teams and governance advisers. It maps current practice among large-cap companies and clarifies the practical trade-offs behind each model. In an era of heightened shareholder scrutiny and evolving disclosure rules, understanding how peer companies allocate pay authority helps boards justify structures to investors and calibrate governance to their own composition and risk profile. Periodic reassessment and clear public disclosure of the chosen approach are recommended to sustain trust.
Why should I read this?
Short version: if you’re involved in board-level governance or advise boards, this saves you the slog of trawling dozens of proxy statements. It tells you what peers do, why they do it, and what the real-world trade-offs are — accountability versus speed, expertise versus optics. Read it to stop guessing and start choosing the right model for your board.
Practical takeaways for boards
Boards should match approval arrangements to: investor expectations (transparency and clear accountability); board composition (do you have compensation specialists?); and operational needs (how quickly must pay decisions be made?). Splitting responsibilities across committees can manage workload and optics, but risks inconsistency — so ensure alignment with the overall compensation philosophy and disclose the rationale.
Article details
Posted by Kyle Eastman and Grace Tan, Compensation Advisory Partners — Monday, 20 October 2025. Full CAP memorandum available in the report linked below.
Source
Source: https://corpgov.law.harvard.edu/2025/10/20/the-boards-role-in-ceo-and-director-compensation/
