Heuristics and Cognitive Biases Tool

In brief: In the boardroom, cognitive biases and heuristics, in the form of fast and slow thinking, can be both a help and a hindrance to effective oversight. This tool works to channel these heuristics into productive and helpful methods for overcoming obstacles. When directors are shown examples of cognitive biases and some techniques for adapting their analysis process to account for them, they can improve their decision-making ability.

• Directors will learn about how fast and slow thinking impacts decision making, particularly in the boardroom.

• Directors will be equipped with methods they can use to mitigate some of the negative consequences of fast and slow thinking.

• An overview of common cognitive biases faced by directors is provided.

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.