With a new administration promoting vastly different governance priorities and practices than prior administrations, change is upon us and it’s happening quickly. The SEC has re-opened commentary on the CEO Pay Ratio regulation and Congress is examining how to dismantle Dodd-Frank.
As always, Pearl Meyer shares an annual set of key recommendations for compensation committees. In years past, we have counseled boards to go beyond best practices, to raise the bar and avoid standard executive compensation design, and to think strategically and act decisively. Those approaches are even more relevant in today’s governance climate.
We believe that boards this year are likely to encounter unforeseen and perhaps unpredictable challenges. Accordingly, we offer five questions that boards can ask themselves as they think about the best ways to stay on course and do what is right for the organizations they serve.
- Deregulation: The pay inequality issue isn’t going away, regardless of what happens to the CEO Pay Ratio rule. Is our management team fully prepared to address internal and external questions?
- Discretion: At certain times, management may need to take actions that are in the best long-term interests of shareholders, but may negatively impact short-term results and compensation. How do we manage this?
- Direction: Should our compensation committee expand its role to encompass broader talent management responsibilities?
- Differentiation: Do we have compensation programs that create a competitive advantage; how are our compensation programs different than market; and do those differences help with attraction, retention, and motivation?