NACD Compensation Committee Chair Advisory Council

Compensation committee mandates have continued to grow, but one of the most important components remains steadfast: focus on aligning executive compensation with the overall company strategy.

As boards look to strengthen this link, many are focusing on pay design and adding nonfinancial metrics to executive compensation plans. According to data from the 2018–2019 NACD Public Company Governance Survey, 86 percent of survey respondents use nonfinancial metrics in their CEO’s compensation plan. Of these companies, 40 percent use employee engagement as their metric.

The Compensation Committee Chair Advisory Council, cohosted by NACD and Farient Advisors—an executive compensation, performance, and corporate governance advisory firm—met on April 10, 2019, to discuss aligning executive compensation plan design with strategy. After a discussion on current trends, the following insights emerged from the dialogue:

The focus on the board’s compensation committee has never been sharper. The components of compensation plans and the link between compensation and company performance are under intense scrutiny from shareholders, employees, policymakers, the media, and other stakeholders. The Report of the NACD Blue Ribbon Commission on the Compensation Committee revisits NACD’s 2003 Report of the NACD Blue Ribbon Commission on Executive Compensation to highlight the new environment in which compensation committees—and, more broadly, boards—are now operating. It recommends that the compensation committee and board work together to establish an executive compensation philosophy that supports the company in creating long-term, sustainable value.

The report includes ten specific recommendations for compensation committees to consider when evaluating their compensation philosophies. It also provides practical tools, such as sample compensation committee charters, a compensation committee assessment, and guidance on executive employment contracts.