Strong Advice for Compensation Committees on Targets, Methods and Clean Sheets

Strong Advice for Compensation Committees on Targets, Methods and Clean SheetsZoom inDownload PDF

In this coverage of Leading Minds of Compensation–West, which ran in the September/October 2017 issue of NACD Directorship magazine, Barry Sullivan joins other leading compensation consultants to give advice on some of the most vexing questions and issues facing compensation committee chairs and members.

How can directors best manage reputational risk for themselves and the compensation committee?

Barry Sullivan: Let me break it down in two ways. One, you’ve got to know where you’re different than conventional practice. We talk a lot about the homogenization of executive pay, which is an unfortunate outflow of the current say-on-pay era. I think that’s a dystopian view of the future. Companies still need to tailor their programs and largely, have the flexibility to do that. And we’ll see much more of that in the years to come.

That dovetails into the second point, which is all about communication—communicating both internally to employees so that you get the maximum power of the compensation program internally with employees, and externally to investors. That’s the soup du jour, right? The compensation discussion and analysis (CD&A) remains the principal communication tool around pay, and most CD&As today are in pretty good shape.

Compensation committees have approached CD&As with an eye for continuous improvement in the last three, four, and five years. As you think about the influence of Institutional Shareholder Services and the other proxy advisors, you’ve seen a tamping down of problematic pay practices. For example, we’ve seen a reduction in severance multiples and an increase in the prevalence of hedging policies and ownership requirements. That’s all good hygiene around compensation.

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