Compensation and Character: Human Capital and Executive Pay
By Directors and Boards

Balance must be found between retaining talent and pleasing shareholders.

The approach to executive compensation is in flux for many companies entering 2021. Some organizations fared well or even better than they would have without the crises that included a global pandemic and a push for social and professional equity through social unrest. Other industries took big hits. As the dust settles, it’s left to the compensation committee to evaluate how managers performed and compensate them accordingly.

Many corporations set their 2020 compensation plans in February, says Eric Hosken, a partner with Capital Advisory Partners, but by the end of March, the expectations and benchmarks for management in those plans were useless.

“Some committees reset the annual incentive plan,” he says, “while others waited to see how the year played out and then applied discretion in considering, ‘What goals would we have set had we known then what we know now?’

“Directors are really earning their pay in terms of trying to figure out how to balance keeping management teams motivated while being sensitive to the concerns of shareholders.”

Looking long term is another way to smooth out any discrepancies between performance and compensation: waiting for the 2018-2020 cycle to finish before reworking comp programs, changing plans for 2021-2023 or waiting even longer to get a clearer view of new circumstances and business recoveries.

In the meantime, many compensation committees are tasked with oversight of human capital issues, which adds an additional dimension to pay plans. This evolution has added to the committee’s workload and time commitment, as half of the committee’s time may be spent on non-compensation issues.

“Increasingly you see compensation committees renaming themselves as ‘the leadership development committee’ or ‘the organization and compensation committee,’ embracing that broader mandate,” says Blair Jones, managing director of Semler Brossy. “Some of this was already happening over the last four to five years as succession and talent planning for the next level down moved into the committee. Pay equity is a natural extension of that.”

Compensation is also being used as a tool to retain talent for businesses that have suffered through no fault of the C-suite, says Maggie Wilderotter, a director of Costco, Hewlett-Packard Enterprise and Lyft and the chair of DocuSign.

“Hewlett-Packard Enterprise and Lyft had real challenges when the pandemic hit,” she says. “For HPE it was with the supply chain. They did a lot of business in China and other places that got a hit hard early on. With Lyft, business dropped off over 75% in the last few weeks in March.

“Both have recovered substantially since then, but measuring how companies pivot, how they make the best of the situation that they’re in, their resilience, and how they’re staying focused on value creation are those subjective areas comp committees are taking into consideration in our duty of loyalty and our duty of care.”

2021 First Quarter

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