A majority of directors say they are most concerned about two forces affecting their companies: growing business model disruptions (52%) and a slowing global economy (51%) in 2020. The findings come from the recently completed National Association of Corporate Directors 2019-2020 Public Company Governance Survey. About 68% of responding directors believe that current strategies will become irrelevant within the next five years, noting, “future growth will likely depend on the adoption of a different business model and an entirely new set of assumptions about what success will look like.”
This sentiment could impact compensation programs going forward. Compensation programs have traditionally attempted to provide continuity by utilizing the same metrics over multiple years. However, if this new paradigm develops, compensation committees may consider:
- Evaluating metrics for appropriateness more frequently and changing where necessary;
- Exercising discretion in award payout decisions; and
- Providing more equity incentives through options due to inherent performance-based characteristics.
- Boards are taking a more in-depth look at human capital/talent needs to address the rapidly changing business environment:
- 77% of directors express comfort with their board’s oversight of current and future talent needs.
- However, only 43% said they reviewed charters to ensure talent oversight responsibilities are effectively allocated across the board.
- Only 34% said the board has set clear expectations for what data and information they need from management to oversee human capital risk.
- ESG concerns are now a common discussion in the boardroom:
- Nearly 80% of public-company boards now engage on ESG issues in some meaningful way.
- While internal discussions have focused on ensuring linkages to strategy and risk, directors report that discussions with investors often center on the “social” side of ESG, with an emphasis on human capital (65%) and diversity (74%).