As many compensation committees start expanding their oversight to broader human capital strategies, a new Semler Brossy piece outlines how boards and committees can work together with chief human resources officers to “raise their game in HCM.” With the SEC’s proposal of HCM disclosure rules expected this fall, board directors should get comfortable discussing these items and prepare the necessary information to provide effective oversight.
The report focuses on the steps directors can take to elevate discussions around HCM priorities and work with management to ensure the organization has the talent alignment to successfully deliver on these goals. Doing so requires a multi-step process built to maximize the board’s effectiveness:
- Clarify the HCM connection. Understanding how the company’s HCM strategy supports the business will help shape which HR facets are most critical. For instance, an organization undergoing large change may need to focus on talent planning and culture versus a company expanding into new global markets which may need to focus on talent development and diversity.
- Understand the current state. Get up to speed on what is already communicated about human capital and ask questions about how the data is collected, how meaningful the data is, and what may be missing. It is important for CHROs to understand what information is needed at a board and committee level, allowing them to provide appropriate oversight.
- Define future success. Partner with management to determine appropriate goals and metrics. HR leaders should help the board understand the key milestones to achieve these goals as well as the organizational strengths and weaknesses that could impact their ability to drive the results. Consider how external influences could impact success.
- Determine responsibilities. Ensure consensus on the right level of engagement for director oversight of each topic. The level of responsibility will often vary from periodically monitoring progress to reviewing and approving a new program or large-scale change. The report includes a helpful matrix to capture oversight responsibilities between the board and committees.
- Update the calendar and expand the charter. Work with the chair on the cadence of HCM topics in conjunction with the ongoing agenda items and determine the best approach for presenting topic and revisiting topics. A sample schedule that introduces a helpful “crawl, walk, run” methodology for introducing topics and building on the framework is included.
- Share oversight and metrics with investors. Directors are engaging with shareholders more frequently and will need to speak confidently on publicly disclosed HCM information. These discussions may help directors understand future investor interests and where the focus should be in communicating HCM in the future.
The report focuses on specific questions that directors should consider in four critical HCM areas: performance management, succession planning, DEI and culture.
- Performance management. Understand how goals cascade through the organization, review analyses that show goal attainment across levels, business units and by demographics, and ask management teams to analyze performance management outcomes for high-potential employees to determine if performance evaluation processes and succession practices could be improved.
- Succession planning. Ask questions about the skills needed now to meet the requirements for future leaders, get a pulse on leadership bench strength and understand what opportunities may exist for high performers who are ultimately not selected for a promotion.
- DEI. Find out current objectives, the status towards these goals and what obstacles may be hindering progress. This is an area of interest for enhanced disclosure, so directors will also want to understand what an analysis may show if it were required to be disclosed.
- Culture. Questions such as how employees experience culture, what do employee engagement surveys say, and what are the potential challenges of our current culture can provide insights into sub-culture areas that need reinforcement or require a deliberate shift.