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A look at why collaboration on the executive compensation plan is essential and how giving consultants more say over the compensation committee's agenda can help.
The design of public disclosures about executive compensation plans is surely among the corporate secretary and governance team’s most critical tasks. The board’s compensation committee ultimately designs the executive pay package, but the work that goes into it entails a collaborative process between the corporate secretary or general counsel, the company’s human resources manager, the external pay consultant and often the chief financial officer.
When corporate secretaries’ role in the compensation determination process is significant, Aalap Shah, Vice President, Pearl Meyer & Partners sees room for some improvement in how they collaborate. He suggests the pay consultant be involved in determining the compensation committee’s agenda for the upcoming year. ‘The consultant brings to the table pressing issues going on in the marketplace and industry,' he says. Combining that external knowledge with an awareness of the internal governance issues the corporate secretary must consider makes the compensation planning process run more smoothly.
When working with the HR department, ‘you’re really trying to understand the prevailing human capital issues and concerns that need to be addressed’ in any compensation plan, says Shah. He recommends the corporate secretary and HR chief ensure there is an open dialogue about what information will be provided prior to each compensation committee meeting. It’s also helpful to include HR in discussions of the company’s financial performance, so the HR manager has a better understanding of any potential headwinds in the coming year that need to be reflected in the executive pay plan, Shah adds.
It has also become more common for companies to involve pay consultants in their shareholder engagement efforts, especially when the engagement is meaningful and touches on compensation, saysShah. ‘When we speak with boards of directors and internal executive management staff, we’re hearing that there is a need to do more engagement, so I would imagine that we’re going to continue to be involved for the long term,’ he says.