New Blueprint Helps Compensation Committees Expand Their Scope

A new “Compensation Committee Blueprint” from Pearl Meyer and NACD gives Compensation Committees an interesting framework as well as some practical implications on Committee charters, calendars, composition and continuing education.

The study examines the shift from the traditional board role and principles of corporate governance focused solely on shareholder value “toward focusing on a broader set of strategic priorities and outcomes that include shareholder returns.” Board directors including Diane Gherson (former CHRO of IBM) and Laurie Siegel (former CHRO of Tyco) were interviewed.

The research noted a trend that directors were becoming more actively engaged, agile and transparent in their conversations. One director indicated “Now you feel more like you’re a partner with the CEO, the head of HR, with the general counsel. I think it’s a new relationship.”

To ensure a trusting partnership and maximize productivity as board members navigate the new norms, CEOs and CHROs could help facilitate:

• Alignment of roles between management and directors, especially on the new human capital topics. Determine which issues directors want management to bring forth. Agree and communicate how directors can advise management and add value.
  
  
• Allow the chair to set the tone. In conjunction with the CEO and CHRO, the chair should clarify human capital and talent strategies from a philosophical standpoint and offer guidance to the committee on its role from a practical perspective.
  
  
• Ask the right questions in the right manner. Be clear on your asks – is the board requesting specific data or looking for an overview or background?
  
  
• Responsiveness. Work with the chair to set expectations on turnaround times for management deliverables as well as board follow-ups to review, discuss and decide, especially since many people and cultural issues are time sensitive and cannot wait for the next quarterly meeting.

The report notes that almost 50% of the S&P 500 now have an expanded Compensation Committee name and 84% list at least one non-traditional responsibility in the charter, such as succession, culture, human capital, or DE&I. There are some useful charts comparing responsibilities between Committees with different names, as well as a sample calendar in graph form that is worth a look.

For more insights, check out the Center’s practical Guides on Director Onboarding and the Expanded Compensation Committee.