Boards Express Confidence That Executive Pay is Better Tied to Performance

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.

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.

Boards Highly Confident of Other Oversight Responsibilities

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

Close to 45% of respondents ranked CEO Succession Planning among their top two pay issues, which NACD 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.

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Source: NACD Press Release