The industry group for public company directors, the NACD, recently announced that they’re producing a guide to compensation structures to help connect pay to performance. The purpose is apparently to guide corporate directors, in part because
directors on compensation committees are under unprecedented pressure to define the strategy and rationale for their executive compensation decisions.
That’s funny because we’ve been reading articles, from the popular press (the WSJ told us “How to Fix Executive Compensation” just four months ago!) to financial journals, for over a decade talking about pay and performance. The topic reached a crescendo during the dot com boom as the value of stock options grew to unforeseen heights for many companies. But that, too, was just an echo of an earlier rise during the heyday of the MBO, when putting management’s “skin in the game” was part of a strategy to improve performance. More recent restricted stock grants have similar goals.
Why the NACD thought that last week was finally the time to create this guide escapes me. Consider, for starters, that all of these directors are ALREADY subject to fiduciary duties to perform their duties competently. What is the NACD saying? That companies really don’t know what they’re doing? Or that there’s a right way and everyone has been mucking it up all along?
I’ll stick with the cynical explanation that the compensation consultant and law firm sponsors/advisors to the guide finally coughed up enough money to make it worthwhile to the NACD to pretend to solve a problem that has already been the subject of scads of actual academic research and that has already been “solved” annually by every board on which its members sit.