The Advisors' Blog

– Liz Dunshee

A recent survey of 250 directors – conducted by Corporate Board Member & Compensation Advisory Partners – offered these key findings about performance metrics (also see this Semler Brossy memo on setting effective performance goals):

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

– 93 percent of directors surveyed believe that TSR has a place in long-term performance plans

– Directors are evenly divided on whether or not D&I metrics should be incorporated into incentive plans

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

– 35 percent of directors surveyed believe that companies should exclude the impact of share buybacks

– 64 percent believe that one-time special retention awards are important to attract and retain talent (despite proxy advisor risks)

This announcement provides more color on using non-financial metrics in plans:

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. 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,” says Melissa Burek, a partner at Compensation Advisory Partners.

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