Corporate directors' biggest executive compensation concerns are selecting performance goals that are aligned with shareholder value and retaining executives with proven track records, according to a new survey.
The survey asked 176 leading corporate directors in the United States to rank seven key executive compensation issues in importance as well as to assess their ability to effectively address those issues.
Thirty-three per cent of respondents ranked the selection of performance goals that align with shareholder value as their top board issue, while 19 per cent cited the need to retain top-performing executives, according to the survey by the National Association of Corporate Directors.
“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 consulting firm 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,” he said.
When asked 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 retain top-performing executives. Nearly 50 per cent of respondents said their CEO succession plan needed revision or review, while 30 per cent said the same of their executive retention efforts.
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