Q: What is the biggest challenge for boards in terms of embracing compensation as a mode of value creation?
A: It’s changing the historical perspective. Until fairly recently, the concept of compensation has been viewed primarily as a cost of doing business. But we are beginning to see leading organizations change their compensation philosophies. They’re thinking about it as an effective tool for the board to reinforce behaviors that drive the company’s business goals. Then it actually becomes a point of differentiation in how a company operates and executes. When there’s clear alignment between corporate strategy and the compensation program, everyone can be more precise in short- and long-term goal-setting and most importantly, successful in achieving those goals. And that’s going to set them apart from the vast majority of their competitors.
Q: How can boards begin to align pay and business strategies?
A: First, move away from the idea that conforming to the norm, or matching best practices, is a healthy approach. You want to incorporate market intelligence and data, but let it inform, not dictate your compensation program. This is especially important when new regulations introduce complexity. As the companies we work with begin this journey, we suggest maintaining a sharp focus on what’s best for the organization and adopting a long-term mindset. Where you can truly achieve success is by identifying the unique compensation approach that drives value for your company.
