Future of the American Board Blueprints

Compensation Committee Blueprint

By NACD Staff


Compensation Committee Future of the American Board

Is the Committee Ready? 

As leading directors explore the expanding scope of responsibilities beyond traditional executive compensation parameters, some may quickly realize it requires more than their own individual interest in moving the needle on human capital management. 

They may be working, alone or with others, toward a change of the committee’s name, updates to its charter, and the ongoing, active, and productive discussions of multiple parties. And while tactical changes like these are valuable external signals and represent expanded involvement in talent management, it is important to evaluate the full committee’s readiness for formally taking on the additional responsibilities that come with an expanded scope.

Is the committee leadership and membership fully engaged and routinely discussing broader human capital topics, ranging from succession planning and leadership development to environmental, social, and governance (ESG) issues and gender and racial pay equity? This will be the first indication of a unified group. Jamison reflects that many committees may be further along the continuum than they recognize. “We were already doing a lot in the area of human capital management on all of my boards.”

For those committees in transition, one way to raise awareness and initiate conversations as to broader talent management topics is to incorporate an HR-focused agenda item at each committee meeting. An update can be led by the CHRO, intended to shine a light on key human capital issues currently affecting the organization. The topics can vary from meeting to meeting, and can include updates on turnover, talent acquisition and development, or progress on diversity initiatives. This provides a great opportunity to contextualize compensation discussions and often springboards into strategic discussions on key organizational imperatives. For example, by examining turnover, committee members are better positioned to offer suggestions about retention strategies and succession planning efforts. Batra offers an example. “We’re looking at engagement surveys now, which are critical articles of evidence that give us insight into the pulse of the organization. The compensation committee wants to know if the culture is aligned with the leadership.”

In fact, such dialogue and strategic engagement between the board and the CHRO is itself an acknowledgment of the elevation of workforce issues to the board level, and many boards are increasingly interested in who fills that seat. “The HR field is growing, learning, and expanding all the time,” says Jamison. “The CHRO has become hugely vital, and finding a world-class CHRO—that’s a hard job to fill.”

An additional, related readiness indicator is how the board approaches its own turnover and talent management. Compensation committee members must have the experience and skills that add value to these conversations. Siegel says, “The board needs people with this expertise and skill set. We need to know how to ask the right questions or advise on issues related to human capital management and that proficiency did not appear on the skills matrix a few years ago.”

Along with widespread committee engagement, and the right directors, the support of the CEO and senior leadership is also key. In recent years, stakeholder expectations about broader human capital concerns have risen quickly and significantly and this has not been lost on management teams. If the CEO and their direct reports resist overt compensation committee or larger board involvement in talent management issues, that dynamic may warrant a different kind of board conversation. Without a partnership approach to human capital management that goes two ways, there likely won’t be much meaningful progress on the issues.  

Of course, the committee will naturally face numerous challenges as it expands its scope. Perhaps the most glaring one—and potentially the most difficult to solve— is accommodating the additional time that these new areas of attention require. The core executive compensation responsibilities are not diminishing, so it will be important to be as efficient as possible with the committee’s allotted time and come to a collective understanding about priorities, agendas, and an overall approach to how the committee’s work is managed.

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