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Majority Of Directors Say CEO Compensation Should Include Diversity And Inclusion Metrics

Stamford, CT - 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