NEW YORK--()--Corporate Directors say that setting appropriate goals for executive performance remains their biggest pay issue for 2012 – and give themselves high marks for their progress toward that goal, according to the newest quarterly survey by the National Association of Corporate Directors (NACD) in collaboration with compensation consultancy Pearl Meyer & Partners.
“Directors need to be engineers, directly applying those performance outcomes in selecting new metrics and calibrating future goals.”
More than one third of Board members in the fourth quarter NACD Board Confidence Index (BCI) ranked the selection of performance goals that are aligned with shareholder value creation as their top compensation challenge. Nearly 70% of participants stated they are “confident” or “very confident” about how well their current performance goals are aligned with shareholder value creation, and more than 80% – up slightly from the first-quarter index – stated they are “confident” or “very confident” about how well their current programs address the broader challenge of aligning CEO pay with performance.
“The results suggest Directors recognize the importance of this issue and have an appetite for the challenges of trying to build better pay programs,” said Jim Heim, a Managing Director of Pearl Meyer & Partners. “There’s been a steady cutback in non-performance-based pay components such as perquisites and contractual guarantees – and Boards are spending more time benchmarking the alignment of relative pay and relative performance, and then recalibrating to improve that alignment.”
Heim said the key will be consistently applying that information to the design of 2012 programs. “As Boards conduct year-end pay reviews, they need to go beyond measuring and disclosing plan results,” said Heim. “Directors need to be engineers, directly applying those performance outcomes in selecting new metrics and calibrating future goals.”
Boards Highly Confident of Other Oversight Responsibilities
Interestingly, the BCI survey respondents uniformly gave themselves high grades on each of the seven key compensation issues covered in the survey. Upwards of 60% of the Directors said they felt “confident” or “very confident” about how well their current program addressing pay-related risk, CEO succession, regulatory compliance, executive retention, and several aspects of aspects of pay-for-performance programs.
CEO Succession Cited as a Continuing Challenge, But Not Compliance
Close to 45% of respondents ranked CEO Succession Planning among their top two pay issues, which Heim said is consistent with the greater attention being brought to this issue in recent years by both governance experts and directors. Somewhat surprisingly, given the multiple new regulatory and legislative initiatives around executive pay, fewer than 12% of respondents ranked “understanding and complying with new regulatory requirements” among the most important issues for companies. Similarly, oversight of the potential institutional risks created by compensation programs was cited as the first or second most important pay issue by slightly fewer than 14% of those surveyed.
To view the latest BCI data, please visit www.NACDonline.org/BCI.
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 governance, strategy and program design. The firm provides comprehensive solutions to complex compensation challenges for companies ranging from the Fortune 500 to 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, San Francisco and San Jose.
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 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.