Assessing the Impact of Director Compensation on Board Culture and Agility 

How to use this tool: The points below offer discussion starters to begin active exploration of the board's current compensation policy and its potential impact on culture, as well as examples of changes that may encourage needed evolution.

The influence of a board's culture on its own baseline performance, as well as its ability to adapt and keep pace with shifting organizational needs, is dependent on a robust mix of institutional knowledge, evolving experiences and skills, and fresh insights. A healthy amount of desired turnover—versus either stagnation or too many disruptive changes—supports an optimal state. Smooth transitions between incoming and outgoing directors should be the norm. All of these conditions can be supported and maintained in part through a board's compensation strategy and policies.

Data show companies have increasingly relied on mandatory retirement policies (used today by 77% of the Top 200 companies tracked in the 2022-2023 Pearl Meyer/NACD Director Compensation Report, compared to only 20% in 1995) to address board refreshment. In the context of a culture discussion, this approach is rather cold and perhaps lacking in nuance. Thoughtful boards are likely to devise a "carrot" to accompany the "stick."