Center On Executive Compensation
News

Center's 2021 Annual Meeting Features SEC's Elad Roisman, D&I Metrics, Expanded Comp Committee

Published on: November 15, 2021

Authors: Ani Huang

Topics: Corporate Governance, ESG and Diversity & Inclusion, Executive Pay Legislation and Regulation, Executive Pay Plan Design

The Center’s second-ever Virtual Annual Meeting was held this week and included insights and advice from a plethora of experts, commentators and companies.
 
Center Chair Marcia Avedon, Executive Vice President and Chief Human Resources, Marketing and Communications officer of Trane Technologies, opened the Center’s 2021 Annual Meeting by noting that “we are in a very active period in terms of legislation and regulation around climate metrics, human capital metrics and executive compensation. We all need to be prepared on behalf of our organizations to meet this challenge.”
 
 
 
 
The following includes highlights of the comprehensive agenda – please see the full recap here.
 
KEYNOTE ADDRESS BY COMMISSIONER ELAD ROISMAN
 
Center President and CEO Ani Huang hosted SEC Commissioner Elad Roisman for a live fireside chat on his perspective on potential rules regarding human capital management (HCM) and climate change disclosures, proxy advisory reform, 10b5-1 plans, Dodd-Frank rules and the risk of “policy seesaw” from administration to administration. Some of the most noteworthy insights are below.
 
  • Commissioner Roisman predicts the forthcoming HCM rule “has potential to create more prescriptive line-item disclosures.” He has not seen the draft, but other commissioners have mentioned line items such as retention rates, workforce composition and metrics of that nature. 

  • In addition, the Commissioner described his viewpoint on materiality: “If we start requiring information that’s not material, there’s no bound to where it ends and the investors get lost.”

  • Commissioner Roisman welcomes more conversation with companies on these and other SEC agenda items. In his opinion, the best way to engage with the SEC is to meet in person, which helps ground what is practical and helpful from a policy perspective to large employers, or comment letters for matters related to a rulemaking perspective. If there is a letter written, then the comments and concerns are required to be addressed by the SEC, so comments matter.
 
DEEP DIVE ON REGULATORY AGENDA (View slides here)
 
Henry Eickelberg, Center COO, led a panel discussion with Gibson, Dunn & Crutcher partners Tom Kim and Michael Perry reviewing and analyzing the SEC’s anticipated actions for the next couple of years.
 
  • FTC Agenda. Regarding regulatory issues around competitiveness, Mr. Perry commented that we will definitely see HR related anti-trust enforcement and efforts toward rulemaking from the FTC. Those areas could include transactions such as merger reviews and criminal anti-trust enforcement on “no-poach” agreements with restrictions on the labor market. While the anti-trust guidelines have not changed, with discussions around competing employers related to compensation and benefits, it is even more important that companies follow the guidelines for audit purposes.

  • Non-Competes. About banning non-competes, Mr. Perry added that the FTC & DOJ have started to lay the groundwork for the possibility of rulemaking in this area with their joint workshops around labor competition issues. If this rule proceeds, it will at least provide an audience for companies and associations to explain why non-compete agreements can be pro-competitive for reasons like protecting intellectual property.

  • Human Capital Metrics. Mr. Kim shared his perspective as it relates to human capital metrics being “not meaningful until you think about what your labor force looks like and what type of business you are in to begin with. Companies should provide information on their quantitative disclosures to help explain their position.” When providing context, such as on diversity metrics, “don’t leave too much room for interpretation and provide context to your investors around improvement year to year. If you think there is a risk of misinterpretation of your data, then you should explain yourself. Think about your strategy for creating your disclosure and the ramifications for not providing it well.”
 
EVOLUTION OF THE COMPENSATION COMMITTEE
 
Stephen Fry, Senior Vice President, Human Resources and Diversity, Eli Lilly, moderated a panel including David Rodriguez, Executive Vice President & Global CHRO, Marriott International and Mirian M. Graddick-Weir, director at Yum! Brands and Booking Holdings and former Merck CHRO, on the expansion of the Compensation Committee.
 
  • Expansion of the Committee. Mr. Fry began by providing data from a recent Center survey where the majority of Subscribers indicated the role of the Compensation Committee has expanded by either extending the charter or renaming the Committee to cover more topics, including human capital management, diversity & inclusion, and talent. 

    • Mr. Rodriguez noted he supports the compensation committee and a separate committee focused on D&I. Last year, the compensation committee changed its name to HR and Compensation Committee to cover all HR matters, and the D&I committee was renamed to Inclusion and Social Impact Committee which will refocus on inclusion and ESG issues. The two committees operate independently, but Mr. Rodriguez serves as a liaison. 

    • Ms. Graddick-Weir shared her experience on sitting in the Management Planning and Development Committee which focuses on talent issues, as well as the Nomination and Governance Committee. The Committees are very strategic on including both business-critical and emerging issues. Ms. Graddick-Weir pointed out that it’s important to avoid redundancies between committee functions and the full board. The committee should be able to have a deeper discussion and provide insight to the full board.

    • Mr. Rodriguez pointed out that the committee should work on behalf of the board to identify key issues and provide informed perspectives to the board. While the CHRO needs to keep the directors’ view in mind, they should also align with current business strategies and goals, educate the committee to achieve a consensus, and think ahead. 

  • Evolving Topics. Ms. Graddick-Weir added that topics have been evolving due to the pandemic and racial justice movements. Board members are more interested in topics like diversity and talent management, and it’s a new challenge for the CHRO to manage this trend and ensure the committee and board work effectively.  

  • Potential Pitfalls. Ms. Graddick-Weir highlighted that clarity is needed about what goes in the remit of each committee and the full board to avoid redundancies. As an example, Yum! Brands has laid out an issue map and defined board and committee roles on each topic.  Leaders should coordinate committees as they have different needs; for instance, the Audit Committee may want to know more about the risks of ESG disclosure. 

  • Onboarding and Director Education. Panelists emphasized that although compensation consultants have traditionally been a major resource in educating the board, when it comes to topics outside of executive compensation, different expertise may be needed.
 
APPROACHES TO D&I METRICS IN INCENTIVE PLANS (See video recording here)
 
Ani Huang moderated a lively panel of Charlie Tharp, Shelly Carlin and Rich Floersch on the ins and outs of tying diversity and inclusion metrics to pay.
 
  • Lasting Change. Ms. Carlin noted that the current push to tie diversity metrics to pay, along with a broader focus on disaggregated diversity disclosures and corporate goals, is motivated by multiple stakeholders including investors, customers, employees (especially the new generation), and the public. However, at this point, it’s still just a minority of companies implementing this practice.  Mr. Floersch added that a changing and more diverse board is driving discussions on this topic. 

  • Should Diversity be Tied to Pay? Dr. Tharp encouraged participants to consider two questions: 1) what behaviors should these incentives try to change? 2) what messages are you trying to convey - is this forced by investors, or do you truly see a need aligned with your values and culture? HR leaders should make sure the link is meaningful and sustainable. Mr. Floersch added that companies should ensure their readiness for this change and emphasized that there are alternatives to drive diversity other than compensation, such as public disclosure of goals. 

  • Choosing Metrics. Once a company decides to link diversity and pay, it’s important to explain the “why” – to reflect customer demographics? Or align with company values? Once realistic goals are established, companies need to set up a management process, budgeting, resource allocation, measurement, process tracking, accountability - and eventually lead to the executive incentive plan.  Dr. Tharp reminded participants that incentive is not the only way to ensure accountability - promotion and recognition can be more powerful. 

    • If there is concern around what to do when D&I metrics are met but financial goals are missed, Mr. Floersch suggested the use of a D&I modifier on top of financial metrics (as Prudential does). 

    • Annual vs Long-Term. Here the panel diverged in their thinking. While Ms. Carlin maintained that diversity should be a long-term consideration built into the company’s business strategies, Mr. Floersch argued that placing it in the annual incentive plan is more effective as managers tend to pay more attention, it empowers mid-level managers, and it can be recalibrated every year. Another option is to put diversity metrics in both annual and long-term plans (as Starbucks does) or use annual progress against a long-term goal. 

  • Goal-Setting. The panel discussed the use of external benchmarks, noting that it could backfire if stakeholders perceive the bar as being set too low. “Numbers are showing progress, but behavior is what makes the process.”
 
HUMAN CAPITAL METRICS: DISCLOSURE & ENGAGEMENT
 
Anita Graham, Executive Vice President, CHRO and Public Affairs of VF Corporation hosted a panel to discuss HCM disclosures from both a policy and practice angle, including James Andrus, investment manager, sustainable investments at CalPERS, Elizabeth (Libby) Kellerman, Assistant General Counsel, Executive Compensation and Benefits at Verizon, and Neil Stewart, Director of Corporate Outreach at Value Reporting Foundation (formerly SASB).
 
  • CalPERS and HCM Coalition Goals. Mr. Andrus kicked off the conversation with an in-depth explanation of what the HCM Coalition is hoping to achieve by advocating for disclosure of human capital metrics. “Currently it takes about an hour and a half to find basic information that investors want to know about a company. Culturally, Americans do not report things that they are not required to report so even with the principle-based rule we find that very little gets reported.” He and CalPERS hope that SEC rulemaking will result in companies reporting more transparently, producing “positive externalities which will positively affect the economy.” 

    • Metrics. Mr. Andrus stated that CalPERS would like to see human capital metrics such as workforce demographics, workforce compensation, workforce incentives, safety measurements and human rights (what companies do within their communities) moved into the financial statements. 

  • Verizon Strategy. Ms. Kellerman touched on Verizon’s strategy around having a standalone HCM report. She commented that in 2020 it was decided that they create a single source that tells their story while taking data elements from the social section of their ESG disclosure – however, it is not linked to regulatory filings. Verizon also engages with shareholders by creating a downloadable spreadsheet with ESG data year over year and issuing e-blasts to shareholders with D&I qualitative and quantitative data.

  • Value Reporting Foundation (SASB). Mr. Stewart spoke to the Value Reporting Foundation’s deep focus on the HCM research project, stating that “next to climate, HCM is the most pervasive topic that the Value Reporting Foundation set standards for across the 77 industries.” While creating standards, the Value Reporting Foundation zeroed in on certain themes like workplace culture (D&I and engagement), worker well-being (mental health), labor conditions in the supply chain, workforce investment (skill enhancement and trainings) and alternative workforce issues. Their priorities are to establish metrics around D&I and engagement and come to a common agreement on definitions around workforce issues.
 
EXECUTIVE TALENT AND THE GREAT RESIGNATION (View slides here)
 
Rich Floersch moderated a panel of Andy Challenger, SVP of Challenger, Gray & Christmas, a global executive outplacement and career transitioning firm, Mike D’Ambrose, CHRO and EVP, Human Resources, Boeing, and Ashley Goldsmith, Chief People Officer at Workday, on executive talent.
 
  • Wages Rising. Mr. Challenger started the discussion by sharing some data compiled by his firm. Statistics show that wages are rising across the board in the US, especially in the last 3 months – the highest accelerating rate in the last 20 years - to attract workers. Available workers are down 4.7 million compared to 2019 which has worsened the labor shortages businesses are facing. The question is how transitory this challenge will be and what strategies companies should consider.

  • Retention. The number one reason for employees to leave their jobs as of the fall is “burnout,” flipped from “lack of flexibility” in the summer of 2021. Interestingly, even though “perceived low wages” is far behind on the reasons for quitting, “increasing wages” is the solution most companies are providing. The speakers reminded attendees to think about the root cause of their retention or acquisition issues.

  • New Leadership Skills. Ms. Goldsmith explained that the ability to empathize is much higher on the list of key leadership skills than previously, and that this will carry forward. Mr. D’Ambrose added that to help new leaders to be part of the team is important. HR leaders should brainstorm ideas for onboarding aligned with cultural stability and integrity.

  • Retaining Executive Talent. Ms. Goldsmith shared that Workday focuses on development and exposure of high-potential junior executives. Top leadership gives signals to the talent they want to keep because employees tend to stay if they feel their company connects with them. Mr. D’Ambrose added that Boeing has an agile project assigning high-potential talents to specific teams on specific programs to demonstrate their ability. He asked attendees to contemplate how to cascade talent engagement to next level.

  • Attracting Executive Talent. Mr. Challenger stated that from a recruiting perspective, it is much easier now to access executive talent as people work remotely and feel isolated from the culture of the company. Mr. D’Ambrose shared the wisdom of keeping in touch with departed talent, and panelists encouraged attendees to “be creative” when it comes to talent acquisition, such as hiring retired employees back on a part-time basis, having them coach or lead a learning team, or allowing them to leave for a period and come back. The panel highlighted that there is no one right answer and that customizing the solution to the individual will go a long way. 
SPONSORS
The 2021 Annual Subscribers Meeting was sponsored by Egon Zehnder, Goldman Sachs Ayco, Oracle and Syndio and we thank these companies for their generous support.

Ani Huang

President and CEO, Center On Executive Compensation

Detailed Bio

Contact Ani Huang LinkedIn

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