Summary
The Boardroom Alpha Governance Risk Score is a summary metric that assesses a company’s governance practices relative to its peer set. It is meant to be indicative of the risk represented by their governance practices, but is not an all-encompassing measure and should be coupled with additional data and analytics that are available within the platform.
Governance Risk Score Construction
|
Component |
Why this is included |
Overall Component Weight |
Subcomponent Weights |
|---|---|---|---|
|
Pay-for-Performance (PFP) |
This component assesses the fairness of executive and board member compensation, and summarizes whether or not the compensation is justified by company performance, according to a peer-determined standard. |
30% |
N/A |
|
Board Composition |
This component summarizes basic board characteristics of board size and board member outside commitments. It reflects whether or not the company is expected to receive the appropriate level of attention by its board and executives. |
10% |
Number of people on board: 33% Overboarding: 66% |
|
Board Diversity |
This component reflects the level of diversity present in the board. Diversity is thought to improve decision-making through incorporating more viewpoints, reducing cronyism, and creating a more open and inclusive company culture. |
30% |
Gender: 33% Age: 33% Tenure: 33% |
|
Board Independence |
This component reflects the level of conflict-of-interest present among the board members. A high level of independence indicates that decisions are less likely to be compromised by self-interest and reflect what is best for the company. |
20% |
Chairperson independence: 35% Percent of board that is independent: 35% Compensation committee chair: 15% Percent of compensation committee independent: 15% |
|
Board Classification |
This component reflects the ability of the board to adapt and respond to problems. The schedule for director elections determines how easy it is to remove problem directors and replace them with new people. |
10% |
N/A |