WASHINGTON, DC—MARCH 29, 2023—The National Association of Corporate Directors (NACD), the authority on boardroom practices representing more than 23,000 directors, in partnership with Pearl Meyer, the leader in executive compensation, today published their Compensation Committee Blueprint as part of the NACD Future of the American Board initiative.
The report provides strategic and practical guidance aimed at helping compensation committees navigate a broader set of intertwined responsibilities that now go far beyond executive compensation.
The Future of the American Board Commission’s Compensation Committee Working Group, a panel of experts composed of NACD-affiliated directors and senior leaders from Pearl Meyer, authored the blueprint. The Compensation Committee Working Group is the first of four Future of the American Board working groups that will publish guides this year in key areas of board oversight: compensation, audit, nominating and governance, and risk.
At the onset, the Compensation Committee Working Group noted that a broadened scope of guidance should be considered given the rapidly expanding responsibilities of compensation committees, which now include significant human capital concerns such as succession planning, leadership development, and broader workforce issues. The panel discussed how these issues relate to an organization’s strategy and value creation.
“Human capital represents a real risk to a company’s ability to execute against operational and strategic goals,” said Director Laurie Siegel. “But there’s also an upside in the ability to strategically be a winner in this evolving labor market.”
The report’s goal is that members of compensation committees—at public and private companies—can refer to the compensation blueprint to understand the changing implications for their own boards and use the report’s questions, tools, and checklists to determine what changes may be warranted for their committee and charter and how to implement and manage these changes.
The working group found that companies are increasingly signaling the expanded oversight of their compensation committees by updating the committee’s name, charter, or both. Data from 2022 show that 49 percent of the S&P 500 and 25 percent of the Russell 3000 now have compensation committees with names that imply a broader purview (like “compensation and human capital committee”), and 84 percent of S&P 500 companies list at least one “nontraditional” responsibility in their compensation committee charter, such as succession planning, culture, human capital, DE&I, and leadership or talent development.
“The practical implications of the changes that we’re seeing for compensation committees are immense, which is why this blueprint’s clear-eyed guidance, real-world examples, and process-oriented actions are so valuable,” said Peter Gleason, president and CEO of NACD. “Our thanks to the experienced directors and the experts at Pearl Meyer who contributed their time and talents to this work as part of our ambitious Future of the American Board Initiative.”
“Boards have always understood the importance of having a talented and engaged workforce in delivering on a company’s business strategy,” said Jan Koors, senior managing director at Pearl Meyer and a contributor to the report. “Increasingly, boards, and their compensation committees, realize that the key human capital issues deserving board attention extend beyond the pay of a few senior executives.”
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