Engaging Through Comp Communication - NACD BoardVision
In this edition of NACD BoardVision, the findings in the executive summary of a Pearl Meyer & Partners' research report titled “Creating Engagement Through Executive Compensation Communication” are discussed by Sharon Podstupka, vice president of Pearl Meyer & Partners; public-company director Ernest L. Godshalk; and Christopher Y. Clark, publisher of NACD Directorship magazine.
>> Christopher Clark: Hi, I'm Christopher Clark, Publisher of NACD Directorship Magazine, and this is BoardVision. Today we're going to talk about the wonderful world of compensation, and I'm very lucky, I'm joined by two subject matter experts, Sharon Podstupka, Vice President of Pearl Meyer and Partners, and Ernie Godshalk, an old friend from his NACD days in New England, and a former director of three public companies. Welcome!
>> Sharon Podstupka: Thank you! Thank you for having us!
>> Christopher Clark: I just read a, a recent research piece that you put out, and what struck me was that only 15 percent of those surveyed were really kind of, thought it was an excellent communications between the, the plan, and, and the entire, and I'm not saying the CEO, but with senior executives, and so if you could touch on that Sharon.
>> Sharon Podstupka: So we surveyed over 200 management professionals, as well as directors, in terms of respondents, so there was a mix in who was answering the questions. And one of the areas that we focused on was perceived value of programs, and how that relates to the quality and understanding of the communication that was developed and provided to those who participate in the plans. And, interestingly, what we found was some pretty low marks. And the quality of the communication was, the lower the quality of the communication obviously the lower the understanding of the program, and the lower the understanding of the program led directly to a lower perceived value of the overall pay structure.
>>Ernie Godshalk: I think the research that Sharon and her colleagues have done is really important. Because she's highlighted a trend that is unfortunate. We are spending so much time these days on internal satisfying ISS and writing CDNAs that we've sort of lost the bubble. Incentive plans are designed to provide incentive, and if the people that are the beneficiaries of these plans don't understand them, what's the incentive? So we're spending a lot of time on plan design, but I think we're spending increasingly less time on plan motivation.
>> Christopher Clark: Let, let's connect the tissue between the growing importance of internal communications with the external communications and the wonderful topic of disclosure whether it grows or not and I don't think anybody wants a longer CDNA, but, you know, if you can both address that in terms of, you know, connect the dots for our, you know, 15 to 20,000 viewers.
>> Sharon Podstupka: You know, I think that, like I said, the good news is that organizations have been doing such a good job at telling their story externally. We have moved the needle, so we know we started in a place of compliance and there's greater understanding that there's a, a critical balance in the disclosure externally between the, the compliance element, and then this, quote, unquote, marketing, selling of the, the pay program, and I think through this exercise over the years, folks like me, who spend 100 percent of their time actually writing this type of information, have been able to clarify and increase the quality of understanding on the investor side. And I think what often gets forgotten is that it's not just ISS and, and the other proxy advisors and the institutional investors who are voting, that are reading these disclosures, it's the media that's picking them up, it's your high-potential executives who are picking them up, even lower level employees are starting to understand that they can get access to the top 5 pay, who's getting paid what, and, and why, and that's interesting for people. I think what's gotten lost internally is translating that story. So there's great thought and planning behind that narrative externally. We can put that to use internally, and think about who we need to talk to, why we need to talk to them, what messages are missing, it's okay to ask if people don't understand certain elements of their pay program, maybe they don't know exactly why the need to increase growth or execute on an acquisition plan, or how the leadership succession may play into what they do on a day-to-day basis.
>> Ernie Godshalk: Well this is why I think this research is so thought provoking. It's, for two reasons, one is the surface issue that Sharon I think has explained very clearly is the fact that if the beneficiaries of the plans don't understand them, there's not, not going to be any motivation, and they're not going to see value, so you don't even have the retention benefit, more or less, the motivational benefit. But I think the more thought-provoking issue that's sort of between the lines in this report, although you've mentioned it, is for compensation committees to be thinking more about what are we really working on? I think what's happened over the recent years is the comp committees have gotten so incredibly focused on plan design, how is ISS going to read this? What is the, the CDNA going to look like? And at the end of the day, they're exhausted. And they simply hope that the CEO, or the head of HR, is communicating these plans, and I bet most compensation committees really don't have a good grasp of how well even the named executive officers understand these plans, more or less the people below that.
>> Christopher Clark: Well quite simply, I like to thank the both of you, I've done this for a long time, some new topics, some refreshing insights, particularly from the director point of view, and on behalf of Pearl Meyer Partners and NACD, I'm Chris Clark, and this is BoardVision.
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