Evolving Roles for Compensation Committees—Human Capital Management, Special Awards, and Year-End Planning
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NACD Northern California
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Lisa Spivey,
Executive Director
Kate Azima,
Director of Partnerships & Marketing
programs@northerncalifornia.nacdonline.org
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About The Event
This session targeted compensation committee members and showcased real-life examples of how human capital management, special awards, and year-end planning affect executives and board leaders.
Thank you to our esteemed panelists Kim Box, Steve Charlebois, Eric King, and Colleen Birdnow Brown for sharing their insights with our members.
The key takeaways and full event recording can be found below.
Expanding Human Capital Management (HCM)
- The compensation committee’s role is evolving, with a stronger emphasis on Human Capital Management (HCM) and aligning compensation strategies with long-term company goals. The expanded mandate of committees happened a few years ago—over 65% the S&P 500 have expanded their committee charters to include talent management, retention, succession management, DE&I, company culture, employee engagement, and pay equity.
- Establish decision rights are critical to establish harmony among the board and between the board and management. Defining how to share responsibility improves board oversight.
- The SEC will require additional disclosure of HCM, so there is some uncertainty around the future of the regulatory environment.
- When disclosing results, consistent communication is key—once KPIs are disclosed, they set a precedent. Avoid releasing excessive or competitive information unnecessarily.
- Define success as a board and committee and align on key metrics and gather meaningful data, track trends to evaluate impact on the company over time and ensure the board is also aligned to management.
- Consider compensation is far more transparent these days and can cause company culture issues if people are paid differently for similar roles.
- For 2025, boards should be aware of challenges around talent competition and aligning compensation with future business needs.
- In the next decade, talent leadership will require adaptability and a focus on innovation, especially for legacy companies needing to remain competitive.
Managing Special Awards
- Special awards such as "moonshot" incentives gained traction in 2019-2020, but challenges arise when they are tied to outdated assumptions like low interest rates. These awards may need revision as they become harder to achieve.
- Boards have faced scrutiny for large special awards. Proxy advisors don’t favor these unless clearly justified. Comp committees should stay loyal to their compensation philosophy and use nuance and judgement when managing special awards.
- Boards need to carefully consider canceling or revising awards to align with performance metrics and maintain stakeholder trust.
- Companies should design special awards to align with long-term strategy and operating measures, not just stock performance.
Year-End Compensation Planning
- Compensation plans, including cash, equity, and long-term incentives, often need adjustments based on results and moving targets for success. Boards must balance meeting metrics with retaining talent during challenging times, like the pandemic.
- Adjusting compensation plans requires a mix that aligns with company strategy. The balance between short-term and long-term incentives is crucial for talent retention.
- Navigating SEC and ISS hurdles, along with investor reactions, falls on the compensation committee. Transparent communication is essential to maintain trust.
- Compensation committees should anticipate rising investor focus on HCM, increased regulatory disclosures, and social justice considerations.
- Boards must prepare for proxy discussions with a clear compensation philosophy and strategies tailored to business performance.
- Fostering a positive board culture within the compensation committee, and managing broader board dynamics, is key to maintaining alignment.
- With the increased purview of the compensation committee, it’s important to consider additional committee meetings off-cycle to discuss the important issues before they arise.
Helpful Resources
- Then and Now: What Defines Success for Today’s CEO - Colleen Brown
- Human Capital and Compensation Committees Need More From Their Advisors - Semler Brossy
- How Compensation Can Expose Talent Gaps - Semler Brossy
- Paths and Implications for Navigating CEO Transitions - Semler Brossy
- The Compensation Committee’s Evolving Role in Human Capital Management - Semler Brossy
- Do You Need a Chief Human Resources Officer on Your Board? - Semler Brossy
And, a special thank you to our sponsor for generously hosting this event.
