The Advisors' Blog

– Doug Friske, Towers Watson

Readers of this blog are well aware of the many changes taking place in the marketplace for companies and boards seeking objective and informed executive compensation consulting advice. We all know the challenges management and boards face in crafting appropriate compensation programs while considering changes in the economy, the effect of risk on pay programs and pending Say-on-Pay legislation. And different considerations will drive decisions about who will act as the board’s pay consultant, their level of industry expertise, the importance of independence and sources for data that can assist in designing competitive pay packages.

As Broc blogged last week, Towers Watson recently announced that that a small cadre of our executive compensation consultants would be moving to an independent, non-affiliated boutique firm (Pay Governance LLC) as of this-coming July 1st. For some companies who desire an independent board advisor, Pay Governance LLC will be the preferred alternative. Others will want to work with multi-service firm like Towers Watson, while others may find that having a two consultant model is optimal.

From our perspective, there are a number of important questions companies need to answer to help them determine what works best for them including:

– What are the most important criteria in hiring an advisor?
– Does the board consultant have the requisite expertise in your industry with companies of a similar size?
– Where will the company obtain the data and analytical capabilities to provide the board the information needed to make their decisions?
– Can I get real time information on the enumerable questions that arise on best practices or unique factual situations?
– Will the structure I select give me the bench-strength to accomplish tasks accurately and on time?
– Am I being kept up-to-date on the myriad changes in tax, accounting, legislative and regulatory rules?
– Do I get the attention I need from my consultant when I need it?
– Can the consultant help management in dealing with shareholders and proxy advisory firms, if needed?
– Does management need the consultant to help with broader, rank-and-file or global design challenges?
– What quality assurance policies are in place for the consultant? What are the data security/privacy policies in place, given the sensitive nature of executive pay data?

These are but a few of the questions whose answers will help the decision-making process.

We understand that all parties to this process come to the table with biased perspectives, but we believe companies should be allowed to make informed decisions that best fit their desired governance model. For those companies who believe a multi-service firm can provide those services, very little has changed in the Towers Watson organizational model, where clients will continue to have access to over 300 executive compensation consultants in 35 offices in 16 countries. We will continue to support this business model, and look forward to continuing to be a leading voice in the executive pay debate.