Four Operating Principles for Developing Resilient Executive Compensation Programs

This tool was originally published in the NACD Blue Ribbon Commission Report on Adaptive Governance: Board Oversight of Disruptive Risks. 

Enterprise risk management can be incorporated into an executive-compensation program by an astute and forward-thinking committee. However, by its very definition, atypical risk cannot be foreseen. Boards who adopt an adaptive and flexible governance approach are able to take the unknown into consideration and apply it to the very concrete reality of an executive-compensation plan. 

This tool outlines a set of operating principles based on plans, people, processes, and perspectives that can help compensation committees prepare to weather—and ideally capitalize on—the effects of a fast-changing business climate. Compensation committees can use it, particularly the guiding questions, to benchmark their current practices and identify opportunities for improvement.