Archive for the ‘Compensation’ Category

Compensation Strategies to Build Shareholder Value

October 18th, 2013 | By

Companies face challenges in attracting and retaining executives while meeting regulators and shareholders’ expectations. But there are solutions. Speakers on this panel shared approaches to identifying and developing compensation plans and benchmarking processes for executives and board members.

1. Directors should have an established process for determining compensation plans and engaging contemporary resources. This will enable them to understand the current issues and trends in compensation practices. A process, and the understanding it can provide, will allow directors to utilize business judgment in establishing a compensation package that will attract and retain management as well as meet expectations of regulators and shareholders.

2. When determining and assessing the performance goals underlying the company’s compensation plans, directors should consider the relevance of a given performance goal to the company and its industry, and whether the company’s peers are using that same goal.  Directors should consider the quantitative and qualitative performance measures most relevant to the company, its industry, and its peers.

3. Long-term incentive compensation plans based on the achievement of long-term performance goals serve as the primary motivation behind management retention.

Robert McCormick
Chief Policy Officer, Glass Lewis & Co.; NACD Northern California Chapter

Jane T. Romweber
Partner, Meridian Compensation Partners, LLC

Charles A. Yamarone
Independent Director, United Continental Holdings; Director, Houlihan Lokey’s Capital Markets Group

This summary provided by PricewaterhouseCoopers.

Insights from the NACD Advisory Compensation Council

October 18th, 2013 | By

Executive compensation continues to be a significant hot-button issue. This panel addressed pressing issues involving compensation. The NACD Compensation Committee Chair Advisory Council is composed of some of the nation’s leading compensation committee chairs, regulators, and shareholder representatives of the Fortune 250. The council engages in robust dialogue on the expectations of the compensation committee, stakeholder communication strategies, and emerging trends; the panel offered lessons learned from the council about how to strengthen other boards’ compensation committee practices.

1. An important issue is defining pay. There is a need for standard definitions and a common nomenclature.

2. A benefit of shareholder engagement on compensation is that there has been a restructuring of the disclosures included in the proxy statement (CD&A). It’s easier to read, more concise, uses charts and is informative—and it tells a story.

3. It is important for the compensation committee not to assume the entire board understands the variables driving compensation: pay philosophy, peer group selection, etc. It’s also important not to be afraid to have a “non-cookie cutter” pay philosophy.

Amy L. Goodman
Partner, Gibson Dunn

Yvonne R. Jackson
Director, Spartan Stores; President, BeecherJackson

Robert James
Analyst, Farient Advisors

Nana Mensah
Chairman, Compensation and Leadership Development Committee, Reynolds American Inc.

This summary provided by PricewaterhouseCoopers.

Blue Ribbon Commission Report on Talent Development

October 15th, 2013 | By

As the marketplace grows in complexity and turbulence, it is increasingly clear that true  success depends on people. As boards face more disruptions, they will need to ensure the company has the right skills and agility in the talent pipeline to meet these challenges. This topic—talent development—was the subject of this year’s Blue Ribbon Commission (BRC) report. In the second session of Tuesday’s Board Leadership Conference, NACD’s Managing Director and CFO Peter Gleason was joined by the chairs of the 2013 Report of the NACD Blue Ribbon Commission on Talent Development: A Boardroom Imperative Gregory Lau, managing director of the board of directors practice at RSR Partners, and Mary Pat McCarthy, director of Mutual of Omaha and Tesoro, to discuss the commission’s findings and examine the “next” practices in executive talent development.

Why Talent Development?

The reasons for the board to prioritize talent development are obvious. Over 50 percent of a company’s expenses are related to talent and people. “With the right talent,” observed McCarthy, “you can take on more risk than you might otherwise be able to do.” And yet, for the first time in decades, the talent pool is shrinking. When companies do find themselves at an inflection point, they may not easily have the necessary talent on deck.

Both chairs observed that traditionally, the board has focused on CEO succession. One of the report’s recommendations, however, is to have a multi-level, multi-year talent pipeline overseen by the full board. “Directors,” according to McCarthy, “need to think beyond the CEO and the current year.”

Building vs. Buying Talent

Directors need to take a critical look at the organization’s hiring philosophy. Does the company develop and promote from within, or hire from outside? Although there are situations that may require a significant external recruitment strategy—for example, a turnaround situation—internal hires are often less expensive and on average more successful.

Further, oversight of the talent pipeline should not be a “start and stop” process. The chairs recommended that the board continuously monitor the talent pipeline. Directors should spend time as a board thinking about strategy and the skills the company is going to need, and actually allocate time to do a deep dive. Going beyond the company, Lau recommended looking at competitors’ talent to figure out how they are developing their pipeline. A red flag for directors should in fact be that their competitors are consistently recruiting talent from them.

Strategic Human Resources Function

At BRC meetings, a significant portion of the debate was where the authority of talent development should rest in the company. The commission came to the conclusion that the human resources function should serve as a “strategic architect” to the company. The chief human resources officer or equivalent position, in fact, should make sure that the talent development process is “constant, moving, with good results,” according to Lau. “That person should have time on the board agenda, throughout the year, talking to the directors on talent.”

The Report of the NACD Blue Ribbon Commission on Talent Development: A Boardroom Imperative is available at the NACD Bookstore and free to download for all NACD Full Board Members.