Considerations for Enhancing the Board Evaluation Process

Thorough, rigorous, and recurring evaluations are an important mechanism for boards looking to reliably assess performance and effectiveness. For over a decade, companies listed on the New York Stock Exchange (NYSE) have been required to disclose how their boards evaluate key committees. In addition to committee evaluations, the NYSE also recommends that companies conduct full-board assessments annually.

NACD has long called on companies of all sizes and ownership structures to carry out individual director, committee, and full-board evaluations as part of a broader strategy for continuous improvement. This brief offers guidance on how boards can transform evaluations from a check-the-box exercise to a dynamic process that enhances board performance.

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.