Determining Non-Financial Metrics For Executive Compensation

More focus in the boardroom these days is centered on how executive compensation is tied to an organization’s overall performance. For boards of directors, just what does that look like? It turns out—many directors are still trying to figure that out.

In this video hosted by Corporate Board Member, Kathryn Neel talks about “Say On Pay” and shareholder engagement on executive compensation. “Investors are asking about strategic measures. They’re asking about ESG. They’re starting to ask about non-financial drivers of success or even on the other side of that, risk factors,” Neel says.

Investors are looking at how companies are managing culture, innovation and other non-financial-metrics and determining if it should be included in determining executive compensation. So where does that leave the board and the compensation committee?

Neel says while there have yet to be a wave of adoption of these metrics in determining compensation, there is an uptick in serious discussion about them. “[Board directors] are talking in the compensation committee about corporate strategy, key indicators of success, and directors are being asked by investors how they defend not having those metrics.”

Later in the video, Neel talks about how boards are monitoring a company’s culture and how they are factoring it into executive compensation. “In terms of compensation, [culture] is not an easy thing to embed in a compensation program….we have clients who have reviewed employee engagement surveys, for example. But a really great emerging practice for a compensation committee is reviewing an HR scorecard, it reviews all sorts of quantifiable metrics.”

Even still, Neel says it’s not an easy metric to embed into a compensation program. “On the pay side, the only place I see it is when a CEO is evaluating their direct reports and discussing how those direct reports are evaluating the next level of leadership at the organization.”

Click above to play the entire video to find out more.