New Pearl Meyer & Partners’ Survey Reveals Complexity of Internal Executive Pay Communication
Internal executive compensation communication is a growing priority among boards and their management teams, but there is a gap in the perceived effectiveness
NEW YORK—August 18, 2014—Internal executive compensation communication is a growing priority among Boards and their management teams, but there is a disparity in the perceived effectiveness of that communication according to a new survey from Pearl Meyer & Partners, PM&P On Point: Creating Engagement Through Executive Compensation Communication. “Internal” executive compensation communication refers to the information that companies provide to their employees who are eligible and/or participate in pay programs that include incentive plans. The survey addressed a range of topics including:
- Quality and effectiveness of executive pay communication
- Perceived understanding of executive pay programs
- Practices for creating and delivering messages about executive pay
- Key roles and responsibilities for developing executive pay communication strategies and content
The survey found that while most outside Directors said the level of communication was "just right" (88%), only about half of management felt the same way (56.7%). There was an even wider gap regarding the level of detail. Of management respondents, 42.7% said there wasn’t enough detail, yet only 8% of outside Directors agreed. However, something nearly all survey respondents (99%) agreed about is that it’s more important for executives to understand the aspects of executive pay than for shareholders.
“Effective communication to executives about the design and rationale of their pay programs is critical to the long-term success of organizations,” said David N. Swinford, President and CEO, Pearl Meyer & Partners. “It’s important to establish a clear link between business goals, what’s required of executives to drive those results for the company, and how their actions will impact their compensation.”
More than half (52.2%) of survey respondents said that communication strategy development generally begins from the first plan design discussion, yet nearly the same number (48%) indicated they were unsure, when asked, if the Compensation Committee is presented with a communication strategy during plan design discussions.
“It’s essential to simultaneously align pay plan communication strategy to pay plan design, although according to our survey, that doesn’t happen half of the time,” said Sharon Podstupka, Vice President, Pearl Meyer & Partners and author of the survey. “To create the right engagement, companies should ensure they expend the same time and energy planning for communication as they spend on pay plan design. Internal communication should be an ongoing, year-round effort." According to the survey’s executive summary, there are three keys to developing successful internal executive compensation communication:
- View communication as a shared responsibility between Compensation Committees and management.
- Challenge tactics for communication strategy and implementation in the same way, and at the same time plan design recommendations are reviewed.
- Develop and document a strategy and implementation plan that outlines key messages, audiences, drafting/reviewing, approval roles and responsibilities, and the frequency and timing of communication when plan design changes are approved.
About the survey
The 2014 survey PM&P On Point: Creating Engagement Through Executive Compensation Communication was conducted between April 28 and June 8, 2014. The 212 participants included 162 executives and/or HR professionals and 50 outside Directors. The survey was designed to gain insights on the communication approaches companies use to provide information about how they recognize and reward their people.