NACD Issues Perspective on Executive Compensation Definitions to Help Corporate Boards Communicate Link Between Pay and Performance

WASHINGTON, Dec. 16, 2013 (GLOBE NEWSWIRE) -- The National Association of Corporate Directors (NACD) today 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 its more than 14,000 corporate director members, 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.

The resulting proliferation of approaches has made it difficult for investors and other stakeholders to effectively compare 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."

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 NACD 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 37 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.

CONTACT: Media Contact: Chief Marketing Officer Henry Stoever 202-775-0509 hstoever@NACDonline.orgSource:National Association of Corporate Directors