Compensation Committee's Mandate Expanding Amid Talent Crunch, Hybrid Work

The great resignation has expanded the talent committee’s mandate to items such as talent management and retention, panelists in a National Association of Corporate Directors panel noted, amid developments in the market for executive talent, the relationship between boards and management, and how incentive plans are tailored. 

 Expanding mandate reflects focus on human capital: Christine Y. Yan, a board member at Ansell, Cabot Corp., Modine Manufacturing Co., and Onsemi, noted, “Seventy-five percent of my boards have changed the compensation committee to human capital and compensation. A lot of companies have changed not just the name, but also the charter to reflect that human capital is the most important asset of the company. The committee looks at hiring practices and diversity, equity, and inclusion.” 

 In the age of ESG and the talent crunch, compensation committees are reevaluating how they can keep incentive plans effective and relevant. Matt Turner, a managing director at Pearl Meyer, observed, “Performance measures are drivers of value. But are there things you can do to tailor the measures to remove some of the variability? You want your management team to be responsible for all aspects of how value is created, but you also want to make sure that they’re focused on the things they can control.” 

 Hybrid work has created upward pressure on executive pay—making the market for executives more national, rather than local.  Eric Hosken, partner at Compensation Advisory Partners, said, “It doesn’t matter where you’re located. There is competitive pressure on wages for executives and it’s giving executives more flexibility. The positive side for some companies in smaller cities… is that now those companies are realizing that they can compete for talent elsewhere, but also that they have to pay a nationally competitive wage to do it.”

 The increased focus on human capital has intensified the relationship between compensation committees and management. Committee chairs are becoming more involved. As a result, committee meetings are prone to include a wider range of items on the agenda—and raise additional issues to be discussed in the next meeting. Lori Miller, partner at Farient Advisors, noted, “The amount of time that I’ve seen the chairs commit to these committees is exorbitant. They almost feel like they are employees.” 

 For more information on expanded compensation committees, see the Center’s recent survey here.