December 8, 2020
Carve Out Time to Reflect on Compensation Philosophy
– Lynn Jokela
As many companies continue to struggle with fallout from the pandemic, questions abound about how companies will deal with 2021 goal setting and whether companies will make adjustments to outstanding performance awards. A recent NACDonline memo from Roger Brossy and Blair Jones of Semler Brossy suggests now may be a time for boards to reflect more generally about executive pay – basically a time to step back and think about a company’s executive compensation philosophy in the new economic context.
In “normal” times, it’s easy for one year to roll right into the next and things never seem to slow down. If there ever was a time to carve out some time to think about the company’s philosophy around executive compensation, the memo makes a good point that the time is right now. Here are three primary compensation considerations the memo provides for boards to help guide their reflection:
– Decide if pay should continue to be based on market results: include consideration about whether the definition of ‘market’ needs to expand, at least for the highest-potential talent
– Assess whether pay-for-performance needs to be redefined: what is the proper balance of stakeholder concerns and awards for leaders? Ideally, boards could focus on both financial and stock market performance and stakeholder priorities by emphasizing a few stakeholder metrics that are strategic and lead to higher value creation.
– Determine the proper balance for retention: Can we continue to rely on the common wisdom that people leave for greater opportunity and not for pay?