Give Them Something to Talk About: Open Dialogue Fosters Alignment on Compensation

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Executive compensation is again making headlines, as several companies grapple with the new provisions set by Dodd-Frank, including say on pay.

A recent article from the Wall Street Journal noted that “there remains plenty of upward pressure on pay. CEO cash bonuses rebounded in 2010…and executives can be well rewarded by stock grants as company performance and share prices improve. Still, companies face more pressure to defend those packages…”

This news highlights the importance of effective, transparent communications from the boardroom. Now that shareholders of publicly traded companies have an advisory vote on executive pay, board members should be prepared for increased scrutiny of executive compensation packages. It is critical that boards communicate the reasoning behind compensation packages, and how they align with the company’s long-term strategic plans.

Last year, NACD issued the Report of the NACD Blue Ribbon Commission on Performance Metrics: Understanding the Board’s Role, which provided directors with recommendations on using performance metrics to guide compensation decisions, and the board’s role in assessing those metrics. The BRC report serves as a great resource for directors who want to make sure that the established compensation packages demonstrate how the board is rewarding corporate performance.

Improving communications between directors and shareholders can help to promote transparency and build confidence. Shareholders may have more confidence in the board and less reason to challenge compensation packages where supporting metrics are easily available.

For additional tools to help boardrooms navigate both current and future regulatory and environmental changes, please visit the NACD Resources page.

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