Why Leadership Development Should Stay With the Compensation Committee

A recent Pearl Meyer blog post on NACD makes the case that leadership development, often handled by Nominating & Governance or the full Board, belongs with the Compensation Committee.

Compensation Committees are very adept at designing executive compensation programs that are aligned with strategic goals and ensuring payouts are tied to the company’s performance. In recent years, many Committees have expanded their footprint to include the oversight of broader talent issues such as talent management, culture, and diversity, equity and inclusion - but not always leadership development. The blog author argues that this approach is disjointed and that discussions of talent must be integrated with executive compensation.

The necessity for leadership development being handled by the Compensation Committee is tied to the fact that pay plans are expected to drive long-term (10 years or more) performance, possibly involving multiple CEOs and direct reports.  To achieve this, Committees must carefully consider the experiences, skills and leadership qualities of each executive, make decisions on how to expand duties for executives and high potential successors, and oversee leadership development.  The blog author suggests that Compensation Committees are uniquely positioned to oversee leadership development because of how integrated it is with not only compensation, but with all the human capital management strategies already included in their governance.

While there is an acknowledgement that it will take time for a Compensation Committee to expand its charter to include leadership oversight, the author believes companies will benefit from a cohesive and united approach.