Over the last several years, a few visionary companies have reached new heights to ensure their proxy readers can fully understand and support the value that the executive compensation program delivers. It's as if we've finally cracked the CD&A content code: tell a crisp and compelling pay-for-performance story and make the narrative visually appealing with data presented in a way that's clear and engaging. This is easier said than done, but the basic formula for success has been tested, validated, and proven to be a powerful tool for those willing to wield it.
Of course, while those star elements help push communication over the top in terms of effectiveness, we cannot ignore some of the fundamental ingredients in the CD&A that help companies build trust for the decision-making process in the board room. These building blocks include content like:
- Competitive positioning;
- Governance practices; and
- Incentive plan mechanics.
So why aren't we leveraging this power formula -- a basic trust-building foundation enhanced by great storytelling -- for internal communication about pay, too? It's no secret that a large chunk of the workforce does not believe they are being paid fairly as compared with other people in their own companies. Isn't having a workforce that's uncertain about pay on par with having an investor base that's not clear on pay rationale? This issue exists largely because of the way that companies have typically approached pay communication. Historically, companies have not been granular or transparent about the mechanics behind pay programs in a way that gives people a better foundation for understanding how their roles within the organization are valued and how their pay links to that value.
With the CEO pay ratio disclosure looming overhead and the impending publication of the median employee salary, there is no time to lose. It's time to get your workforce re-educated about how your company sets pay and makes its ongoing decisions about pay -- above and beyond your Named Executive Officers (NEOs). People need to understand that their role within a company, their experience in that role, and how the market views the value of that role are meaningful and logical inputs to their salary. They also have to have comfort that the people making decisions about their pay use a disciplined process. And, of course, they need to feel confident that they have wealth creation opportunities when they contribute to the success of the business.
Here's where you can use your CD&A to your advantage. Take its pieces and think about how you would revise and rebuild the content to tell a story about how compensation works for your broader population. Then, you can determine how transparent you want or need to be with your internal audiences about each aspect of your pay program in order to properly educate them and help combat the growing global angst about pay disparity.
