NACD Issues Executive Compensation Definitions to Help Corporate Boards Articulate Linkage Between Pay and Performance

Definitions are Grounded in Input From Leading Corporate Directors and Institutional Investors

        Print
| Source: National Association of Corporate Directors

WASHINGTON, Jan. 9, 2014 (GLOBE NEWSWIRE) -- The National Association of Corporate Directors (NACD) released a proposed framework for supplemental executive compensation definitions. As the advocate for the profession of directorship, NACD developed these definitions to establish a common language that companies and boards can use to assess and communicate the link between executive compensation and company performance.

NACD's perspective reflects input from the Compensation Committee Chair Advisory Council and council partners Farient Advisors and Gibson, Dunn & Crutcher LLP, as well as NACD's membership of more than 14,000 directors, major institutional investors, and other corporate governance professionals. Further, NACD's perspective is grounded in over 37 years of proprietary research and thought leadership on executive compensation matters.

The need for a consistent approach to supplemental compensation definitions stems from the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Dodd-Frank Act requires companies to disclose the relationship between compensation paid to its senior executives and the financial performance of the company. The final rule on this provision is pending from the Securities and Exchange Commission.

In the absence of standard definitions, many companies are taking the initiative to include supplemental pay definitions in their proxy statements in an effort to provide more meaningful information to their shareholders. According to one study, nearly 25 percent of large companies included a reference to realized or realizable pay in their 2013 proxy statements.  

According to Robin Ferracone, CEO of Farient Advisors, "the resulting proliferation of approaches has made it difficult for investors and other stakeholders to effectively evaluate pay for performance alignment across companies." In a July 2013 survey of NACD members, 60 percent of directors and nearly two-thirds of compensation chair committee respondents supported the idea of standard baseline definitions for realized and realizable pay, provided companies could maintain flexibility to include additional data. 

In keeping with its mission of advancing exemplary board leadership, NACD supports the following key principles to help corporate directors clearly articulate the relationship between executive compensation and company performance to shareholders:

  • Standard definitions, with flexibility.
  • Consistent time horizons, oriented to the long term.
  • Disclosure beyond the CEO.
  • Importance of board judgment and company context.

"In today's business climate, companies are increasingly providing additional executive compensation disclosures to shareholders, but without standard definitions in place, the approach to disclosure and the information conveyed have widely varied," said Ken Daly, president and CEO of NACD. "In the course of developing this framework, we were delighted to see the degree of alignment between directors and leading institutional investors on the key principles and so many of the underlying issues."

Amy Goodman, a partner with Gibson, Dunn & Crutcher LLP, said, "Alternative pay definitions will continue to be a hot topic in 2014, and we look forward to greater understanding of the value of standardized pay definitions this year."  

NACD developed the pay-for-performance principles and definitions to help guide companies and boards as they prepare for the 2014 proxy season, and as part of their broader shareholder engagement programs. 

For more detailed information about the executive compensation definitions and principles, download a copy of NACD Perspectives: Pay for Performance and Supplemental Pay Definitions at www.nacdonline.org/pay.  

About NACD

The National Association of Corporate Directors (NACD) is the only membership organization focused exclusively on advancing exemplary board leadership. Based on more than 35 years of experience, NACD identifies, interprets, and provides insights and information that corporate board members rely upon to make sound strategic decisions, confidently confront complex business challenges, and enhance shareowner value. With 14,000 corporate director members, NACD provides world-class director education, director training, and proprietary research about leading boardroom and corporate governance practices to promote director professionalism and bolster investor confidence. Furthermore, to create more effective and efficient corporate boards, NACD provides independent board evaluations and custom-tailored in-boardroom education and training programs, as well as director-led conferences, forums, and peer-exchange learning opportunities to share ideas about current and emerging issues. Fostering collaboration among directors and governance stakeholders, NACD is shaping the future of board leadership. To learn more about NACD, visit www.NACDonline.org. To join, contact Kelly Dodd at kkdodd@NACDonline.org or 202-380-1891.

Media Contact:
Chief Marketing Officer
Henry Stoever
202-775-0509