Key Areas of Focus for Remuneration Committees to Ensure Pay Equity in 2025

In the swiftly changing global environment of today, Remuneration Committees (RemCos) are confronted with a remarkable set of challenges. Geopolitical instability, advancements in artificial intelligence (AI), increased shareholder scrutiny, and evolving workplace expectations have intensified the focus on executive remuneration.

The challenge of balancing leadership rewards, shareholder satisfaction, and long-term business sustainability is more intricate than ever.

As they navigate these turbulent times, here are the primary concerns for RemCos in 2025:

1. Navigating geopolitical uncertainty

The instability on a global scale—from conflicts in Eastern Europe and the Middle East to rising tensions among major powers—creates market unpredictability, supply chain challenges, and risks to economic growth. This instability has a direct impact on company performance, complicating the establishment of dependable financial goals for executive compensation. RemCos must create remuneration frameworks that are robust, incorporating adaptable performance targets, multi-year evaluations, and relative performance indicators to account for external disturbances. It is also essential for companies to stress-test their incentive systems under various economic conditions to maintain stability during volatile periods​.

2. Integrating AI and digital transformation

The swift ascent of AI is reshaping industries from finance and healthcare to manufacturing and retail. Executives are tasked with guiding their organizations through digital transformation, ensuring the harnessing of AI-driven efficiencies while addressing risks such as workforce displacement and ethical implications. RemCos should contemplate integrating AI-centric objectives into executive incentive packages, rewarding leaders for successfully spearheading AI innovation and promoting a responsible AI strategy. Additionally, as AI takes over certain roles, RemCos need to reevaluate talent and skills development, ensuring that executive compensation aligns with the long-term sustainability of the workforce​.

3. Addressing shareholder and stakeholder expectations

Institutional investors and activist shareholders are increasingly vocal regarding the structures of executive compensation, especially in scenarios where substantial pay is perceived as misaligned with performance or broader economic contexts. Shareholder revolts are becoming more common, with major companies encountering significant resistance to their remuneration reports​. To mitigate backlash, RemCos must proactively engage with investors, provide transparent rationales for pay determinations, and ensure that remuneration aligns with creating value for all stakeholders, including employees and communities. Clear communication about how executive pay supports corporate strategy is essential​.

4. Managing rising executive remuneration

Despite economic uncertainties, executive compensation continues to rise, frequently surpassing wage growth for the general workforce. High-profile cases—such as HSBC’s consideration of a potential £15 million CEO pay package (a 43% increase)—have ignited discussions on pay equity. RemCos must closely validate increases in executive remuneration by ensuring they are closely linked to measurable performance results, long-term value creation, and industry standards. Additionally, there is increasing pressure to guarantee that CEO pay ratios remain reasonable to preserve employee morale and avoid reputational harm​.

5. Embedding ESG metrics into remuneration

Environmental, Social, and Governance (ESG) considerations are now integral to corporate strategy, and investors anticipate that executive pay will mirror this transition. However, connecting ESG metrics to remuneration can be challenging, as some companies find it difficult to define significant and quantifiable ESG objectives​. RemCos should ensure that compensation components related to ESG are directly associated with long-term business aims—be it reducing carbon emissions, improving workforce diversity, or fortifying corporate governance. A well-conceived ESG-linked pay strategy enhances corporate reputation while also promoting sustainable performance.

6. Adapting to the evolving workplace

The workplace is experiencing dramatic transformations driven by hybrid work models, changing employee expectations, and a heightened emphasis on work-life balance. RemCos must ensure that executive remuneration policies reflect this transformative reality by supporting flexible work arrangements and promoting an inclusive workplace culture. Furthermore, pay equity has emerged as a pivotal issue, with shareholders and regulators closely examining disparities based on gender, ethnicity, and job position​. By addressing these matters proactively, companies can boost employee engagement and attract top talent.

7. Enhancing human capital oversight

The responsibilities of the Remuneration Committee are broadening beyond executive compensation to include a more comprehensive approach to human capital management. Increasingly, RemCos are expected to supervise succession planning, talent development, workforce retention, and employee well-being​. This transition necessitates a more integrated perspective on remuneration, ensuring that leadership pay frameworks align with overall workforce strategies. Companies that incorporate human capital considerations into their remuneration frameworks will be better positioned to attract, retain, and cultivate future leaders while preserving shareholder trust​.

8. Ensuring regulatory compliance

As regulatory landscapes shift rapidly across various jurisdictions, RemCos must keep pace with compliance mandates to avert legal and reputational risks. Recent developments, such as the repeal of the EU’s bonus cap on bankers’ salaries in the UK, underscore the necessity for companies to routinely reassess their remuneration policies in light of changing regulations​. Additionally, disclosure obligations are tightening, prompting regulators to demand increased transparency regarding the determination of executive pay. Implementing robust governance practices and ensuring adherence to global standards will be crucial for maintaining stakeholder confidence​.

9. Promoting transparency and accountability

In an age of increased scrutiny, transparency in executive compensation is essential. RemCos must provide clear and concise disclosures that explain how remuneration decisions are reached and how they align with company performance and strategy. Companies that fail to effectively communicate their pay frameworks risk eroding shareholder trust and facing public backlash. Constructing a compelling narrative around executive compensation—one that illustrates fairness, strategic alignment, and long-term value creation—will be paramount in 2025​.

10. Preparing for future challenges

The future remains uncertain, with economic downturns, technological disruptions, and societal transformations on the horizon. RemCos should adopt a proactive strategy, embedding flexibility into their remuneration structures to respond to forthcoming challenges. Scenario planning, stress-testing compensation frameworks, and continuously refining incentive systems will be critical in ensuring that executive pay remains competitive, fair, and aligned with long-term business success​. The organizations that are best prepared will be those that anticipate changes rather than merely reacting to them.

As we navigate through 2025, Remuneration Committees must stay nimble, responsive, and strategically focused. The interplay of geopolitics, technology, ESG issues, shareholder demands, and workforce evolution necessitates a comprehensive approach to executive compensation. By centering on these ten priorities, RemCos can adeptly manage uncertainty, ensure alignment with corporate objectives, and reinforce trust with stakeholders. Ultimately, the aim is not solely to reward executives but to cultivate a sustainable, high-performance culture that benefits everyone.

Chris Blair, Group CFO and Corporate Support at 21^st Century.

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