Report of the NACD Blue Ribbon Commission on Board Evaluation

Board evaluation holds a mirror up to progress. In 2010, as we begin the second decade of the 21st century, what do we see?

When NACD convened a Blue Ribbon Commission in 2000 to explore the practice of board self-evaluation, this practice was still relatively new. Only a minority of boards were conducting regular, formal self-evaluations. Most of these focused on the board as a whole—not on committees, much less individuals. Today, board and director evaluations have become commonplace in the boardroom, with a number of organizations, including NACD, advising this activity.

The release of the original 2001 edition of the Report of the NACD Blue Ribbon Commission on Board Evaluation helped to popularize the practice on a voluntary basis, thanks to the clear benefits of this activity. But it was not until mid-decade, following a November 2003 New York Stock Exchange requirement, that evaluations really began to flourish. The “Big Board” required that nominating and governance committees oversee the evaluation of the board, key committees, and management. In 2005, recognizing this activity, we produced a second edition of this report.

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.