With ESG here to stay, the key is ensuring that good governance practices are instilled in related board discussions and strategies.

Unfortunately, boards sometimes screw up. The important thing to learn from said screw-up and ensure it doesn’t happen again.

The board should understand the company’s broader ESG goals to ensure the right approach is taken in linking pay to ESG performance.

In an unstable risk environment, directors must help their companies manage for the long term and maintain organizational agility.

Many directors are glad to see 2022 in the rearview mirror. Expected to finally deliver a reprieve from the COVID-19 pandemic, the last 12 months offered far from it. Persistent inflation, central banks implementing contractionary tightening policies, energy shortages, escalating wages and employee attrition, evolving work environments, continued supply chain challenges, geopolitical tensions and war entered boardroom conversations. 

To guide companies toward their ESG goals, audit committee members should understand their company’s strategy for climate risk and sustainability.

To withstand investor scrutiny, directors must understand industry compensation trends and how incentives relate to company strategy.

Directors involved in the creation of executive compensation plans face a double challenge in the 2023 proxy season as they navigate new regulations and growing investor scrutiny on pay. Executive Compensation 2022, a recent report from Insightia, a Diligent brand, sheds new light on how those two phenomena will affect public companies over the coming year.

Public boards may find it more difficult to afford favorable treatment to terminated executives following the SEC’s action against McDonald’s.

Boards commonly agree to treat the departure of an executive as “without cause” even when “cause” for termination arguably (or even certainly) exists, thereby allowing the executive to receive severance payments and retain equity compensation and other benefits. 

Scenario analysis is crucial to the board’s ability to stay on top of major risk trends.

Preparing for a recession and ensuring that executives have appropriate equity incentives top the list for the new year.

As we reflect on 2022 and progress into 2023, we anticipate a high degree of economic uncertainty and believe the most critical activities for compensation committees will be related to navigating a challenging economic environment. With that in mind, we have identified what we think are the top priorities for committees in 2023.

In the U.S., the prevalence of ESG metrics is high but still lags behind Europe and the U.K.