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Director Essentials: Oversight of Executive Compensation
Executive compensation is one of the most visible and consequential responsibilities of the board and the compensation committee. It sits at the intersection of strategy, performance, leadership, talent, governance, and trust.
Designed well, executive pay clarifies priorities, reinforces accountability, and helps attract and retain the leaders needed to create long-term shareholder value. Designed poorly, it can become a source of tension among directors, management, investors, employees, and other stakeholders.
Key Takeaways
- Executive compensation is a tool for supporting strategy execution. If directors cannot clearly articulate what success looks like, it is difficult to determine whether the pay program is aligned with the company’s business objectives.
- The board and compensation committee should use a structured process, relevant business context, and sound judgment to make informed, defensible, and well-documented pay decisions.
- Compensation committees should apply a practical framework to answer the question at the heart of every executive pay decision: What are we paying executives to do?
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Explore the Executive Compensation Framework
Explore each part of this report for practical guidance, key considerations, and boardroom scenarios designed to help directors strengthen executive compensation oversight and decision-making.
