A corporate director’s role is one not of management but of oversight. Just as grandparents stay in the background while parents raise children, directors guide top executives from a respectful distance.
One of the most direct ways that boards can guide executives is with effective compensation programs. Yet directors themselves often need guidance in how to do it. To keep from losing their way, they can turn to guideposts known as compensation principles, conceptual standards they can use to ensure that their pay decisions accord with their shareholders’ interests.