For more than a decade, performance share units (PSUs) have been the gold standard of long-term incentive (LTI) design. Investors liked them, proxy advisors championed them, and compensation committees embraced them. But in 2025, PSUs found themselves in the spotlight.
The background: As investor scrutiny intensifies and proxy advisors quietly soften their once-rigid expectations that at least 50% of LTI must be delivered in PSUs, long-held assumptions about “best practices” are being reexamined. Add a growing body of academic and practitioner research—often pointing in very different directions – and one thing becomes clear: the debate over PSUs is far from settled.
Few voices are better positioned to cut through this noise than Dr. Charlie Tharp, Executive Vice President and Senior Advisor, Practice and Research, and Ani Huang, CEO at Center On Executive Compensation. In their new piece, “The Debate on PSUs – Who Has It Right?” Tharp and Huang bring clarity, context, and—perhaps most importantly—judgment to a conversation that has become increasingly muddied.
The questions everyone is asking: The pressure on PSUs has sparked a wave of fundamental questions for compensation committees:
- Are PSUs truly driving performance—or merely signaling it?
- Will companies pivot back toward time-based restricted stock?
- Are stock options poised for a renaissance as the “original” performance-based equity?
- What does effective plan design look like if companies have more freedom in their equity mix?
Some studies suggest PSUs meaningfully align pay and performance. Others argue they often reward outcomes driven more by market forces than management action. Investors, meanwhile, are no longer speaking with one voice—and proxy advisors appear more willing to accept variation than in years past.
The bottom line: Their conclusion is refreshingly measured: don’t abandon PSUs in a rush to follow the latest headline or research finding. Instead, ensure PSUs are part of a deliberate, strategy-driven LTI mix, not a reflexive nod to perceived market norms.
