Going Beyond Best Practices: The Role of the Board in Effectively Motivating and Rewarding Executives

The inaugural report of WomenCorporateDirectors’ Thought Leadership Council addresses five key challenges for boards seeking to more directly align their executive compensation practices with their key business strategies. Pearl Meyer chaired the report and is a permanent member of the newly formed Council.

The Council makes a strong case for why directors should not rely on "safe" but generic pay practices that don’t address their boards' real needs. The report explains why and how boards, by tailoring high-level pay program designs to support their particular business strategies and long-term leadership needs, can drive significant long-term value.

Among the practical guidance provided for how boards can make that happen:

• Use situational judgment - Maintaining meaningful alignment with performance in some situations may require going outside plan parameters to reach the best decision.
• Target the position; pay the person - Pay decisions should reference benchmark data and the compensation philosophy, but should also reflect the unique characteristics of each individual’s role in the broader context of the company’s business requirements.
• Pay for retention when warranted - There are times when retaining key talent is essential to maintaining a cohesive management team, even when the retention is not directly tied to future performance results.
• View value creation as a marathon, not a sprint - The period over which performance is measured and incentive rewards are earned should align with the time horizons of the business.
• Stop paying for failure - While sometimes necessary, limiting unwarranted severance arrangements will help Committees further align executive compensation to the business.