Majority Of Directors Say CEO Compensation Should Include Diversity And Inclusion Metrics, New Study Finds

A new study by Corporate Board Member, a division of Chief Executive Group and a market leader in board education, along with Compensation Advisory Partners, a leading independent consulting firm specializing in executive and director compensation and related corporate governance matters, finds 52 percent of directors believe diversity and inclusion (D&I) metrics should be a factor in determining compensation decisions for their top executives. Yet fewer than 10 percent of companies currently use non-financial metrics in their incentive program, the survey of 258 public company board members found.

The findings come amid a growing push in the corporate governance community to emphasize diversity as a key goal in the nation’s companies—especially in leadership positions.

“Shareholders—especially large institutional shareholders-have been pushing for companies to make progress on D&I initiatives,” says Melanie Nolen, research editor at Corporate Board Member, “but companies are data-driven, and measuring non-financial metrics poses a great challenge to compensation committees.”

Although the role that D&I should play in incentive plans has recently moved to the forefront of the discussion around non-financial metrics, there remains a mindset of excluding items that cannot be precisely measured against short-term financial performance.

Still, says Melissa Burek, Partner at Compensation Advisory Partners, there’s been a small increase in the number of companies incorporating non-financial metrics into their incentive plans in recent years. “In most cases, companies weight non-financial metrics as a small portion of the total incentive or use a basket of non-financial measures as a modifier to the final payout,” she says.

Burek believes we may see an uptick in the use of non-financial metrics like D&I in the near-term; yet, over the long-term, the key focus will continue to be on the fundamentals of profitability, growth and returns.

The full report of the survey results is available for download at BoardMember.com/ExecComp. Other key findings presented in the report include:

• When establishing financial objectives, profitability is the highest priority in the near term, while top-line growth takes precedence over the long term

• Nine out of 10 directors polled believe that Total Shareholder Return (TSR) still has a critical place in long-term performance plans

• When setting target performance goals, 76 percent of directors viewed the company’s internal budget/strategic plan as the most important consideration

• More than a third (35 percent) of directors believe that companies should exclude the impact of share buybacks on comp plans

• And 64 percent of directors surveyed believe that one-time special retention awards are important to attract and retain talent

A webinar will be held in May to discuss the findings. To learn more or register, please contact Events@ChiefExecutive.net.

About Corporate Board Member

Corporate Board Member, a division of Chief Executive Group, has been the market leader in board education for 20 years. The quarterly publication provides public company board members, CEOs, general counsel and corporate secretaries decision-making tools to address the wide range of corporate governance, risk oversight and shareholder engagement issues facing their boards. Corporate Board Member further extends its thought leadership through online resources, webinars, timely research, conferences and peer-driven roundtables. The company maintains the most comprehensive database of directors and officers of publicly traded companies listed with NYSE, NYSE Amex and Nasdaq. Learn more at BoardMember.com

About Chief Executive Group

Chief Executive Group, the leading community for business leaders worldwide, publishes Chief Executive magazine (since 1977), ChiefExecutive.net, Corporate Board Member magazine and BoardMember.com, as well as conferences and roundtables that enable CEOs to discuss key subjects and share their experiences with their peers. The Group also runs the Chief Executive Network, the leading CEO membership organization arranged by industry, and facilitates the annual “CEO of the Year,” a prestigious honor bestowed upon an outstanding corporate leader, nominated and selected by a group of peers. Visit www.ChiefExecutive.net and www.BoardMember.com for more information.

About Compensation Advisory Partners

Compensation Advisory Partners (CAP) is a leading independent consulting firm specializing in executive and director compensation and related corporate governance matters. Our consultants have served as independent advisors to boards and senior management at many leading companies in the areas of compensation strategy and program design, promoting sound corporate governance principles.