NACD Compensation Committee Chair Advisory Council: Aligning Executive Compensation with Corporate Strategy
In brief: 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:
- Compensation committees are using a variety of tools to better align pay plans with strategic objectives.
- Top-of-mind considerations include retaining key talent and supporting a healthy organizational culture.
- Pay plan reviews should include consideration of ways to enhance the clarity of communications to both internal constituents and external stakeholders.
This resource can help your board:
- align compensation with the company’s long-term strategic plan;
- examine various compensation levers to align pay with performance;
- evaluate plan design; and
- improve compensation disclosure
Most relevant audiences: compensation committee members, general counsel