How This Year’s Top Governance Stories Will Impact Board Work in 2026

As the curtain falls on 2025, boards and executives find themselves at a crossroads—where the lessons of a turbulent year become the compass for tomorrow’s governance. From record-breaking CEO pay and the recalibration of DEI priorities to the disruptive ascent of AI in talent management, this year’s headlines have (again) rewritten the board’s playbook for leadership, risk, and accountability.

Looking ahead to 2026, the stakes remain high and the pace fast. Boards must continue to navigate a landscape shaped by regulatory reform, activist investors, and global standards convergence—all while embedding ethical AI and skills-based talent strategies into the heart of their organizations. The stories we lived in 2025 are the blueprint for governance agility, resilience, and value creation in the year to come.

1. High Investor Support Despite Record CEO Pay and Recurring Issues

CEO compensation hit historic highs, with median S&P 500 CEO pay reaching $16.4M, driven by long-term incentives. Despite this, say-on-pay (SOP) support remained strong, signaling investor confidence in pay-for-performance alignment for most companies.

Nevertheless, anything less than 90% SOP support indicates lower investor confidence, and nearly one-third of Russell 3000 companies received SOP votes between 50%-90%. Common themes among companies receiving “against” SOP votes from shareholders included:

• Pay for performance misalignment
• Lack of rigor in performance goals
• Special or one-time awards
• Non-performance-based pay design
• Insufficient disclosure

2026 Outlook: Expect moderation in base salary increases (around 3%) but continued emphasis on equity and performance-based incentives. Proxy advisors will tighten scrutiny on discretionary bonuses and one-off grants.

2. Governance Under Political Pressure

Regulatory volatility in the U.S. reshaped governance priorities, with executive orders curbing diversity, equity, and inclusion (DEI) programs and resetting the SEC’s priorities.

2026 Outlook: Boards may face heightened activism and litigation risks as shareholder rights’ debates intensify. Governance agility and scenario planning will be critical. Compensation committees should work to understand shareholder perspectives, making engagement evermore critical.

3. AI Disrupts Talent Management

AI adoption in human resources surged, transforming recruitment, performance management, and workforce planning. An understanding of AI, its opportunities and risks, is now required for boards, their committees, and management teams.

2026 Outlook: AI will move from experimental to embedded infrastructure, requiring ethical frameworks and bias controls. Investors are likely to ramp up their expectations for companies to demonstrate robust board oversight of AI, clear disclosure of risks, and disclosure of ethical use of the technology.

4. Decline in DEI and ESG Metrics in Incentive Plans

After years of rapid adoption, companies pulled back on standalone DEI measures and, to a lesser extent, climate-related goals in pay programs, citing legal and political risks. Nevertheless, non-financial strategic and operational measures remain a key component of many incentive programs and companies continue to align their pay programs with their long-term strategy.

2026 Outlook: Broader human capital and risk measures will continue to replace narrow environmental, social, and governance (ESG) targets. Boards will still disclose non-financial considerations, but with greater caution. Sustainability-focused companies will work to better demonstrate the link between sustainability factors and financial value.

5. SEC Signals Major Disclosure Reform

The Securities and Exchange Commission (SEC) announced plans to modernize executive pay disclosure rules (Item 402) and convened a public roundtable to solicit commentary. Quite simply, SEC Chair Paul Atkins says the aim is to prioritize clarity and materiality over volume. The SEC has yet to publish new compensation disclosure rules, but many expect streamlined CD&A and pay-versus-performance disclosures and simplified requirements around security perquisites.

2026 Outlook: Companies should prepare for potentially simpler and principles-based disclosures that emphasize intended vs. realized pay and lifecycle views of equity awards, among other potential changes. Expect proposed rules to come out in 2026 and consider submitting feedback during the comment period.

6. Surge in CEO Turnover

CEO exits hit record levels—over 1,300 departures by October 2025, according to Challenger, Gray & Christmas—driven by economic uncertainty and digital transformation pressures. While directors surveyed by Farient and Corporate Board Member report they do not expect turnover, they also acknowledge losing a C-suite member or members in the last two years.

2026 Outlook: Succession planning will dominate board agendas. Expect more retention bonuses and long-term incentive redesigns to secure leadership continuity.

7. Investor Activism on Pay and Governance

Activists focused on executive pay alignment, ESG commitments, and board accountability. Boards responded with enhanced disclosure and governance reforms.

2026 Outlook: ISS and Glass Lewis will apply updated pay-for-performance tests with a focus on long-term alignment. Activists may look to executive pay issues as their options for shareholder proposal are limited due to SEC rule changes. Boards must engage proactively with investors to avoid proxy season backlash.

8. Executive Security and Perks Under Scrutiny

High-profile incidents and rising security costs pushed boards to reevaluate executive perquisites and disclosure practices.

2026 Outlook: Expanded clawback policies and streamlined perquisite disclosures will feature prominently in SEC reforms and investor expectations.

Strategic Takeaways for 2026

• Compensation: Expect continued investor scrutiny on executive pay, with boards needing to ensure strong pay-for-performance alignment and transparent practices
• Governance: Boards will need to be agile and proactive as regulatory and political changes drive new risks and require deeper engagement with shareholders
• AI & Talent: Oversight of AI in talent management will become a core board responsibility, demanding ethical frameworks and clear risk disclosures
• Investor Relations: Transparent engagement and proactive adaptation to policy shifts from proxy advisors and regulators such as the SEC are essential

 

Sources: Farient’s Data Analytics Team; Challenger, Gray & Christmas; the Society for Human Resource Management’s “2025 Talent Trends: AI in HR;” and the IFRS Foundation