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There are several reasons for boards to move on from a compensation consulting firm, and as the mandate facing comp committees increases in magnitude and scope, some comp consultants may not be the right fit any longer.
Typically, contemplating a change in comp firms comes when there is a board refreshment and new committee members or a new chair or when the principal consultant for the company leaves the consulting firm, sources say.
“If the chair of the committee, the CEO, and the top HR person change over within a year of each other, [the comp committee] is going to find a different consultant because the consultant identified with the old guard. The new team wants to establish their own way of going forward,” says Dave Swinford, president and CEO of Pearl Meyer.
If comp committees misjudged behaviors and personalities from the get-go, the committee could decide to make a change, Swinford says.
“This is when they don’t accurately assess, at that initial stage of hiring, getting to know someone and how they will play in the sandbox with others over time,” Swinford says. “If a consultant develops a conflict with a key player, if one person has it in for [another]… you are going to lose the relationship in the long run."
Swinford says committees ask firms about whom consultants work with elsewhere. He says the firm encourages consultants to maintain persistent contact with clients, even if no longer working with them.
“A huge source of business is cultivating and maintaining relationships with board members for clients you already have,” Swinford says. “[Board members] tend to share the names of people they like, either because they like working with them personally or they like how they solve problems.”
Additionally, industry experience is important, Swinford says, particularly for those in heavily regulated industries such as financial services and oil and gas.
“People generally want to hire people who will fit well with their team—the comp committee coupled with HR and senior executives,” Swinford says. For example, organizations with aggressive cultures look for aggressive consultants, but when things “tend to be buttoned down, and people are expected to speak when spoken to, [comp committees] look for a consultant that fits that dynamic better.”