Executive compensation is supposed to accomplish three things: attract exceptional leaders, reward results and give executives a reason to stay.
Yet many companies approach it as an annual budgeting exercise. Salaries get adjusted. Bonuses get approved. Benefits get renewed. And unless someone leaves or complains, the underlying compensation strategy receives relatively little scrutiny.
That’s a potentially costly mistake.
Chief Executive Group Research’s latest compensation study, based on responses from 1,551 U.S. companies, reveals just how differently businesses approach executive pay—and how frequently they overlook practices designed to connect compensation with performance.
Consider this: 57 percent of private companies have no formal long-term incentive plan. Among those that do, fewer than one in five rely exclusively on performance-based vesting.
Meanwhile, CEO compensation varies enormously by company size, industry and ownership structure, making broad market averages a questionable basis for setting pay.
There’s no single formula for getting executive compensation right. But there are principles that can help companies avoid paying too much for the wrong outcomes—or too little for the talent they cannot afford to lose.
Here are 10 commandments every CEO and board should put to the test.
1. Benchmark Against the Right Peer Group
The first mistake is often comparing compensation against the wrong companies.
In 2025, median total CEO compensation ranged from $189,116 at businesses generating less than $2 million in annual revenue to $2.2 million at those generating $1 billion to $9.9 billion.
Industry and ownership make a difference, too. CEOs of PE-backed companies earned a median $583,367, 33 percent above the overall private-company median.
A compensation benchmark that ignores those differences can be misleading. A $300,000 salary may be generous at one business and uncompetitive at another.
| Ask yourself: Are we benchmarking pay against companies we actually compete with for leadership talent?
2. Pay for Performance
A bonus should reward more than simply reaching the end of the year.
Our research shows that executive bonuses generally increase with company profitability and revenue growth. But linking rewards to performance takes more than selecting a financial target.
The real challenge is identifying what management can influence—and what results matter most to the business. An incentive tied solely to revenue growth, for instance, may encourage expansion without sufficient attention to profitability or cash flow. A cost-reduction target may deliver immediate savings while undermining long-term capabilities.
| Ask yourself: Are we rewarding executives for creating lasting business value, or simply for hitting the annual numbers?
3. Build a Balanced Pay Plan
Salary provides stability. Bonuses reward near-term results. Long-term incentives encourage executives to focus on the company’s future. Benefits can strengthen the overall package. Each serves a purpose.
Yet 57 percent of private companies surveyed have no formal long-term incentive plan. That leaves many businesses relying predominantly on salary and annual cash bonuses to reward their leadership teams.
Not every company needs equity. But every company should consider whether its compensation mix encourages the behavior it wants.
| Ask yourself: Does our pay structure offer meaningful upside for exceptional performance, or are we relying too heavily on guaranteed compensation?
4. Differentiate Top Talent
Internal fairness matters. But treating every executive the same isn’t necessarily fair—or good business.
Some roles are harder to fill. Some leaders have skills critical to the company’s next stage of growth. And some consistently contribute more than others. Compensation should recognize those differences.
That doesn’t mean abandoning discipline or creating arbitrary exceptions. It means having a deliberate approach to rewarding high-impact roles and exceptional contributions. Otherwise, companies risk spending more to maintain uniformity than they would to retain their most valuable leaders.
| Ask yourself: Are we willing to compensate our strongest executives differently, or is our approach to internal equity putting critical talent at risk?
5. Don’t Let Pay Drift Behind the Market
A compensation package can become uncompetitive without anyone making a deliberate decision to cut pay. Inflation, company growth and expanding responsibilities can gradually erode its relative value.
A historical analysis of our compensation data found that median private-company CEO salaries have failed to keep pace with inflation in recent years. The gap is especially pronounced at smaller companies.
The lesson isn’t that every executive deserves an automatic inflation adjustment. It’s that compensation needs to be reassessed against the market, not merely against last year’s paycheck.
| Ask yourself: If we had to recruit our current leadership team today, would we be willing—and able—to offer them what we’re paying now?
6. Think Long-Term
A company can meet its annual targets and still make decisions that weaken its future. That’s why long-term incentives matter.
Equity, phantom equity, deferred compensation and other arrangements can encourage executives to think beyond the next bonus cycle. But design is critical. Among private companies with formal long-term incentive plans, 47 percent use solely time-based vesting, while 19 percent use exclusively performance-based vesting. The remaining 34 percent combine the two.
Those choices reflect different priorities: keeping executives in place, rewarding value creation or doing both.
| Ask yourself: Are our executives financially motivated to build the company’s long-term value, or primarily focused on this year’s results?
7. Value Equity Realistically
An ownership stake can be a powerful incentive. But its motivational value depends partly on whether executives understand what they hold.
Private-company equity isn’t traded daily, and appreciation can go unrecognized for years. Our compensation research repeatedly finds that many companies don’t regularly measure or communicate executive equity gains. That can leave executives uncertain about the value of what is supposed to be a meaningful part of their compensation.
Formal valuations and clear communication help connect performance with potential financial rewards.
| Ask yourself: Do our executives understand what their equity is worth—and what could make it more valuable?
8. Pay for the Company You’re Building
The leadership team that helped a business reach $20 million in revenue may not have the same experience required to take it to $100 million. As companies grow, responsibilities change. Operations become more complex. Governance demands increase. The talent market often changes as well. Compensation needs to reflect those realities.
Our research shows that median total CEO compensation reached $659,099 at companies generating $100 million to $249.9 million in revenue in 2025, compared with $316,240 at companies generating $10 million to $24.9 million.
That doesn’t mean companies should pay tomorrow’s salaries today. But underpaying for the expertise required to execute a growth strategy can become an expensive constraint.
| Ask yourself: Are we prepared to pay for the leadership talent we need next, even if that means breaking with historical compensation practices?
9. Use Benefits and Perks Strategically
The traditional executive perks package is changing. The share of private-company CEOs receiving a company car or allowance fell from 58 percent in 2017 to 42 percent in 2025. Golf and country club memberships also declined, from 20 percent to 13 percent.
Meanwhile, supplemental life insurance became more common, rising from 42 percent to 50 percent.
The pattern suggests a shift away from some of the traditional trappings of executive status and toward financial protection.
Whether that reflects changing executive preferences, cost discipline or other factors isn’t clear. But it raises an important point: A benefit’s cost to the company isn’t necessarily equal to its value to the executive.
| Ask yourself: Are we investing in benefits our executives genuinely value, or maintaining programs out of habit?
10. Review Pay Every Year
Executive compensation isn’t a set-it-and-forget-it exercise. Business priorities change. Performance expectations evolve. Competitors adjust their offers. And the leadership capabilities a company needs today may look very different in three years.
Yet annual compensation reviews can easily become exercises in approving salary increases and bonus payouts without reconsidering the structure itself.
A more meaningful review asks whether compensation remains competitive, whether incentives reward the right outcomes and whether the entire package supports the company’s strategy.
| Ask yourself: When was the last time we evaluated our entire executive compensation program—not just individual salary increases?
The Cost of Getting It Wrong
None of these commandments requires a company to be the highest-paying employer in its market. In fact, a bigger compensation budget can sometimes conceal a poorly designed program.
Plus, a generous salary won’t necessarily retain an executive who sees no opportunity to participate in future growth. An aggressive bonus may reward short-term gains at the expense of long-term performance. And an attractive benefits package may accomplish little if it doesn’t reflect what executives actually value.
The objective isn’t simply to pay more. It’s to make every compensation dollar work harder.
For CEOs and boards, that starts with asking uncomfortable questions about how pay decisions are made, what behavior they’re encouraging and whether those decisions support the company they’re trying to build.
The biggest compensation mistake may not be breaking one of these commandments. It may be assuming you’re following them without ever checking.
Explore more executive compensation benchmarks by company size, industry and ownership structure in our latest report at chiefexecutive.net/compreport
