Agenda – How Boards Evaluate Comp Consultants

Each board has its own way of evaluating its compensation consultant, but most — two thirds, according to Agenda’s latest Directors’ and Officers’ Outlook survey for the fourth quarter — opt for some form of annual evaluation. However, the data also shows that a sizable 14% have no formal process at all.

As investors, regulators and other stakeholder groups increasingly home in on how companies are paying executives, boards should consider formalizing their processes for comp consultant review, as this topic is likely to come under the microscope, experts say. Meanwhile, critics are continuing to question what exactly the consultants are bringing to the table.

In Practice

Georgia Nelson says her boards annually embark on “a very formal process” reviewing comp consultants, “very much like other board performance assessments.”

Nelson is a director at Sims Metal, Ball Corp., TransAlta and Cummins, serving as chair of the comp committee for the latter two. One benefit to serving on multiple boards, she says, is that she was able to see how different consultants work.

For example, Cummins, where Nelson has served as a director since 2004, has used Farient Advisors for several years and found the firm to be a good match, she says. She liked the consultancy so much that she hired it to replace Willis Towers Watson as the compensation consultant at TransAlta when she joined in 2014.

“It was a better fit,” she tells Agenda, declining to elaborate further on the move away from Willis Towers Watson. “I would just emphasize it’s a partnership.”

Nelson isn’t one to switch out her consultants simply for the sake of having someone new, though. She says she’s of the camp that tends to stick with what works.

She has a specific method of operation on the committees she leads, particularly when it comes to assessing a comp consultant’s performance.