Alignment of Performance Goals with Shareholder Value Top Compensation Challenge in 2011

New Survey Finds Board Members Also Worry About Retaining Top-Performing Executives

Not Enough New Talent in the Pipeline?

NEW YORK--(BUSINESS WIRE)--Corporate Directors’ biggest executive compensation concerns are selecting performance goals that are aligned with shareholder value creation and holding onto executives with proven track records, according to a new survey by the National Association of Corporate Directors (NACD) in collaboration with compensation consultancy Pearl Meyer & Partners.

“Say on Pay votes and the growing influence of proxy advisory firms require Boards to demonstrate they have meaningful performance targets for executives and proportionate rewards”

The survey, part of the NACD’s new quarterly Board Confidence Index conducted in collaboration with Pearl Meyer & Partners and Heidrick & Struggles, asked 176 leading corporate Directors to rank seven key executive compensation issues in importance, as well as to assess their ability to effectively address those issues.

A total of 33% of respondents in the NACD survey ranked “the selection of performance goals that align with shareholder value creation” as their top Board issue, while 19% cited “the need to retain top-performing executives.”

“Say on Pay votes and the growing influence of proxy advisory firms require Boards to demonstrate they have meaningful performance targets for executives and proportionate rewards,” said Jim Heim, Managing Director at Pearl Meyer & Partners. “At the same time, Directors know that retaining their top-performing executives will be an increasing compensation consideration as the economy improves and competitors more actively recruit from their ranks.”

CEO succession planning, which Heim said is emerging as a bigger issue in a recovering economy, ranked third on Directors’ list of compensation concerns. “Many Directors clearly are not satisfied with the quality and readiness of their management backbench, particularly since it’s more expensive to hire a candidate from the outside than to promote from within.”

Asked about how well their Boards are addressing the same seven compensation issues, Directors were most critical of their handling of the CEO succession planning process and of their ability to keep top-performing executives on board. Nearly 50% of respondents said their CEO succession planning needed revision or review, while 30% said the same of their executive retention efforts.

Regulatory Requirements Not a Major Concern

Interestingly, Directors were least concerned with, and most confident about, the myriad of new regulatory initiatives related to compensation issued in recent years. Fifty-three percent said they were “confident” about their programs with respect to understanding and complying with new regulatory requirements relating to executive pay. And another 22% expressed that they were “very confident” with respect to understanding SEC guidance and legislation on a go-forward basis.

Performance Metrics: Understanding the Board’s Role

The NACD Blue Ribbon Commission Report on Performance Metrics: Understanding the Board’s Role provides additional information on the board’s role in establishing and monitoring corporate performance and its relationship to executive compensation. This publication provides helpful advice for creating and monitoring the financial and non-financial metrics that are critical to the success of any enterprise. For more information about NACD’s Blue Ribbon Commission Report on Performance Metrics, please go to: http://www.nacdonline.org/Store/ProductDetail.cfm?ItemNumber=2878.

About Pearl Meyer & Partners

For more than 20 years, Pearl Meyer & Partners (www.pearlmeyer.com) has served as a trusted independent advisor to Boards and their senior management in the areas of compensation strategy and program design, compliance and reporting, and committee structure, policies and procedures. The firm provides comprehensive solutions to complex compensation challenges for companies across all industries ranging from the Fortune 500 to smaller private companies and not-for-profits, as well as emerging high-growth companies. These organizations rely on Pearl Meyer & Partners to develop programs that align rewards with long-term business goals to create value for all stakeholders: shareholders, executives, and employees. The firm maintains offices in New York, Atlanta, Boston, Charlotte, Chicago, Houston, Los Angeles and San Jose.

About NACD

The National Association of Corporate Directors (NACD) is the only membership organization delivering the information and insights that corporate board members need to confidently confront complex business challenges and enhance shareowner value. With more than 11,000 members, NACD advances exemplary board leadership. NACD is focused on creating more effective and efficient boards through director-led education and peer forums to share ideas and leading practices based on more than 30 years of primary research. Fostering collaboration among directors and governance stakeholders, NACD is shaping the future of board leadership. To learn more about NACD, visit NACDonline.org. To join, please contact Kelly Dodd at [e-mail] or 202-380-1891.