Goal-Setting Strategies During High Volatility
2026 Compensation Conundrum
Published November 5, 2025
Published November 5, 2025
In uncertain times, compensation committees must root their decisions in the broader growth strategy and create room for flexibility.
Setting incentive goals for 2026 will be daunting for many compensation committees. Volatility caused by shifting tariff and executive branch policies, AI workforce disruptions and persistent global macroeconomic uncertainty has upended the financial stability needed to set accurate targets, thresholds and maximum goals. Year-over-year goals are already trending downward for some companies as tariffs raise the price of doing business and executive orders have led to government contract cancellations. The question is no longer whether to introduce flexibility into incentive goal setting, but how to do so in ways that maintain both a strong long-term outlook and pay-for-performance alignment despite short-term headwinds.
Ground Goal-Setting Rationale in Your Overall Compensation Philosophy
Any change in a goal-setting approach, especially one that softens targets from historical levels, should endeavor to avoid the appearance of a knee-jerk reaction and be rooted in strong rationale as well as in the overall compensation philosophy. Boards should begin discussions about goal-setting approaches early on, engaging key stakeholders internally and externally to help develop a goal-setting philosophy that aligns incentives with long-term priorities while still accounting for near-term uncertainty. Generally, the philosophical underpinnings of successful goal-setting strategies are:
Focused on long-term interests of shareholders, customers and employees. Adjusting to volatility today should not undermine future growth.
Symmetry on both the upside and downside. If, for example, the relevant tariff rates are suddenly lowered, would softened goals inadvertently lead to a windfall?
Structured to improve performance relative to historical or peer performance. Plans can and should also incentivize overperformance.
Designed to contain thresholds and maximums that ensure a strong pay and performance relationship and fair sharing rates. Strong programs reward strong performance, no matter the circumstances. Just because forecasting is difficult does not make abandoning pay-for-performance alignment worthwhile.
Easily communicated to key stakeholders. There should be a clear connection between goals, outcomes and value creation.
Once a clear goal-setting philosophy is established, boards have several tools at their disposal to ensure compensation programs continue to support the larger pay philosophy, reward exceptional performance and incentivize value creation in times of uncertainty.
Six Approaches for Increased Goal-Setting Flexibility
Method
Effectiveness
Considerations
AIP/LTI
1 Introduce Relative Metrics
• Accounts for industry-wide impacts of volatility. • Maintains competitive differentiation regardless of absolute performance.
• Requires robust peer group selection. • May not accurately capture overperformance. • Requires modeling to ensure small differences in performance don’t have outsized impact on relative performance.
Both
2 Emphasize Strategic Metrics
• Focuses leadership of controllable factors. • Drives long-term value creation even during financially challenging periods.
• Challenging to quantify and measure. • Requires sophisticated communication to investors. • At risk of being perceived as “handouts” if achieved too easily or often.
Both
3 Flatten Payout Curves
• Retains consistent focus on long-term growth. • Hedges against both over and underpayment of executives.
• Softened target and threshold levels may require significantly higher maximum goals. • Complex formulas require deft communication to shareholders.
Both
4 Develop Discretionary Frameworks
• Provides ultimate flexibility to account for unforeseen circumstances. • Allows boards to exercise nuanced judgment about performance quality.
• Faces significant skepticism from proxy advisors and institutional investors. • Requires exceptional governance and disclosure to maintain credibility. • Best when informed by objective measurement, even when discretion determines final payout.
AIP
5 Increase RSU/Time-Based Vesting Weight
• Less dependent on financial forecasting. • Maintains stability value. • Easily communicated to shareholders.
• Can be perceived as decreasing pay-for-performance alignment. • May disconnect pay from short-term operational excellence.
LTI
6 Adjust Performance Period Length
• Allows for real-time adjustment. • Can be combined with relative TSR modifiers to address proxy advisor concerns over lack of rigor.
• May encourage short-term thinking despite long-term vesting. • Requires exceptional disclosure and rationale to gain investor acceptance. • May create duplicative measurement of short-term performance.
LTI
Table 1: Six Approaches for Increased Goal-Setting Flexibility (1 being most durable, and 6 being most temporary)
Method 1. Implement relative metrics
Since the entire peer group is, to some extent, experiencing the same volatility, it may make sense to measure operational success against the competition instead of last year’s goals. However, boards should establish guardrails to ensure relative outperformance against peers is not disproportionately rewarded if the entire industry underperforms.
Method 2. Give greater emphasis to strategic goals
Increasing the weight of operational and strategic milestones relative to traditional financial measures can be particularly effective if strategic milestones are tied to objective, quantifiable metrics, such as lowering marginal costs or launching a new product that will contribute to sustainable long-term success. We suggest a weighting of 20% to 30% depending on the number and strength of the measures. These goals offer balance to plans and outline both a pathway toward and a rationale for increasing long-term value during periods of volatility.
Method 3. Flatten the payout curve
Flattening payout curves is a way to modify the high and low ends of incentive payout structures to reduce extreme variability while maintaining performance alignment. This addresses uncertainty, avoids the risk of either underpaying or overpaying, retains focus on long-term growth and can easily be readjusted when volatility subsides. Some companies also create “strike zones” around target levels, broadening the range of acceptable values to account for the uncertainty in goal setting.
Method 4. Develop and implement discretionary frameworks.
As we discussed in a Semler Brossy blog post on using discretion to adapt to tariffs, we’ve found investors and executives alike are more likely to align on discretionary adjustments when there is a preestablished set of guidelines. Boards should strive to ensure symmetry in frameworks that account for unexpectedly positive scenarios and remember that even the most well-rationalized frameworks may still fail to account for eventual outcomes.
Method 5. Increase The weight of restricted stock units or time-based vesting
Increasing the weight of restricted stock units to 40-50% can help sidestep goal-setting challenges while still tying executives to long-term success, though any higher weights may draw scrutiny. A higher percentage of time-based equity may also disconnect pay-for-performance alignment during critical periods and can tie the committee’s hands in the future, as these programs are difficult to reverse.
Method 6. Adjust performance periods
Companies might consider a variation on their long-term incentives’ (LTIs’) typical three-year performance periods with annual goal setting that maintains three-year vesting. Other variations of this strategy include two-year measurement periods, setting three years’ worth of goals up-front or tying goals to year-to-year growth. A similar tactic may be used in annual plans, where companies break the year into two six-month periods. While shortening performance periods often sparks concern from investors, combining them with overarching governors (such as review of overall period performance for annual incentive plans and relative total shareholder return modifiers for LTI plans) often helps mitigate concerns and reduce maximum payouts.
Ensure Adjustments Support Long-Term Priorities
No matter which approaches boards choose to increase goal-setting flexibility, it is imperative these goals continue to contribute to long-term stability. Directors can consider the following checklist as they develop their 2026 programs:
Have we balanced economic realism with motivating executives (outcomes managers can directly control)?
Are potential payouts under the full range of scenarios defensible to shareholders and employees, relative to peers?
Have we allowed and prepared for making downward adjustments if plans pay out more than intended?
Have we identified potential unintended consequences (e.g., high executive pay alongside consumer cost increases) that could harm brand loyalty?
Have we identified the circumstances/timeline when original plan elements would be reinstated?
If the answer to any of the above questions is “no,” it may be helpful to reexamine the proposed approaches to ensure they don’t prioritize short-term thinking over long-term growth.
Conclusion
There is always a possibility that the present volatility is, paradoxically, the “new normal.” Ultimately, the one thing anyone knows for sure about this current period of volatility is that no one knows when it will end. Developing a solid rationale and strategy for goal setting in 2026, however, does not require a financial crystal ball. By rooting decisions in broader growth strategy and creating room for flexibility, boards can be ready for whatever the year throws at them.
Blair Jones has 30 years of executive compensation consulting experience. She has worked extensively across industries and has deep expertise in advising boards on company transitions, significant investor concerns, and an expanding human capital management mandate. Before joining Semler Brossy, Blair was the practice leader in Leadership Performance and Rewards at Sibson and an Associate Consultant at Bain & Company.
Blair holds the designations of Certified Benefits Professional (CBP), Certified Compensation Professional (CCP), and Certified Executive Compensation Professional (CECP). Since 2013, Blair has consistently been named to the D100, NACD Directorship Magazine’s annual list of the most influential people in the boardroom. Blair currently serves on the Mohawk Valley Health System board and leads its Women’s Giving Circle, helping direct philanthropic support to community health initiatives. She also serves on the advisory board for M3 Placement & Partnership.
Of Interest
Consistently named to the D100, NACD Directorship Magazine’s annual list of the most influential people in the boardroom community, including directors, corporate governance experts, regulators, and advisors, since 2013.
Deborah brings over 20 years of experience in compensation and human capital management, with deep expertise in aligning business strategy to talent strategy. Previously, Deborah was Global Head of Human Capital Management (HCM) Employee Experience at Goldman Sachs. Prior, she was at Bristol-Myers Squibb Company as Global Executive and Healthcare Compensation.
Deborah holds the designations of Certified Compensation Professional (CCP), Certified Benefits Professional (CBP), and Certified Equity Professional (CEP). Deborah earned a JD from the College of William and Mary, Marshall-Wythe School of Law, and a BA in Psychology from the State University of New York at Albany.
Bertha Masuda has over 30 years of experience advising boards and top management on compensation strategy, benchmarking, planning, incentive plan design, and implementation. She has worked with companies across a broad range of industries, including financial services, consumer products, manufacturing, and companies in various stages of development, specializing in growth and mid-cap companies and private companies pursuing a value-realizing event. Clients value Bertha’s unique blend of technical expertise and interpersonal skills to guide strategic decisions.
Before joining Semler Brossy, Bertha was a partner emeritus at Compensation Advisory Partners. She also launched and built Vivient Consulting to meet the need for independent, high-quality compensation and performance advice.
Bertha holds an M.B.A. from the Wharton School of the University of Pennsylvania and a B.S. in Business Administration from the University of California at Berkeley, where she graduated with honors. She also is a Certified Public Accountant (inactive).
