The Advisors' Blog

– Broc Romanek, CompensationStandards.com

Recently, I blogged about five reasons why I thought annual ratification of compensation consultants was a bad idea. I must have been persuasive because my anonymous poll in that blog resulted in 90.6% agreeing with me – while 6.3% said it was a good idea (with 3.1% unsure). Bear in mind that most consultants read this blog so there could be some bias.

I also received a lot of member feedback via email, all of them agreeing with me in one form or another. Here is one that I thought was particularly persuasive:

“I absolutely agree with your notion that this is a bad idea. In fact, it could backfire and result in the kind of entrenched relationships and stale program design that the proposers are likely trying to undo. My sense is that companies are fairly reluctant to switch auditing firms in part because they worry about the potential questions it raises for shareholders over what “disagreements” might have existed.

Would we really want compensation committees to feel the same kind of reluctance? While there would certainly be some professional advantages to having more “sticky” client relationships, knowing that our clients have relatively low “switching costs” helps keep us all on our toes – which is a good thing for our clients and the state of the industry.”