Tharp Helps Blue Ribbon Commission Shape Executive Performance Metrics

Executive Pay Legislation and Regulation, Executive Pay Plan Design

The National Association of Corporate Directors Blue Ribbon Commission on Performance Metrics recently issued its report designed to help boards establish “the appropriate metrics to determine executive progress in achieving strategic goals and competitive success.”  Dr. Charles G. Tharp, the Association’s Executive Vice President for Policy and head of our Center On Executive Compensation, served as a member of the Commission, which was chaired by John Dillon, former CEO and Chairman of International Paper Corporation and William J. White, former CEO and Chairman of Bell and Howell.  To strengthen the pay for performance linkage the report recommends that boards:

• Establish consistent and appropriate executive performance metrics;
• Reward executives based upon performance as measured by appropriate metrics; and
• Communicate with shareholders regarding how the company has paid for performance.

With say on pay now a reality and institutional investor scrutiny of pay practices increasing, reevaluating the relationship between pay and performance is more important than ever. In issuing the report, the co-chairs wrote, “With an improved understanding of both the board’s role with respect to establishing the metrics by which performance is assessed, and the types of metrics that can be used to track the critical elements that contribute to corporate performance, boards and compensation committee members are better positioned to create meaningful incentives and to identify pay practices that may be misaligned.”