May 15, 2019

NACD Directorship – Experts Discuss the Evolving and Expanding Demands on Compensation Committees

By Robin Ferracone, R. David Fitt, Daniel Laddin, Melissa Means and Jeri L. Isbell

Low unemployment and steep competition for digitally savvy directors and employees, along with recurring issues such as the gender pay gap and the ratio of CEO-to-worker pay, provided fertile ground for Leading Minds of Compensation, an NACD-hosted peer exchange held in April at the chic Mandarin Oriental in Boston’s Back Bay. NACD Directorship Publisher Christopher Y. Clark moderated a panel discussion for the first hour before opening the floor to questions from the audience. Directors sought comparative answers to questions from the panel comprised of compensation consultants from four leading advisory firms and one intrepid director.

The panel was composed of Robin A. Ferracone, founder and CEO, Farient Advisors; R. David Fitt, partner, Pay Governance; Daniel Laddin, founding partner, Compensation Advisory Partners; and Melissa Means, managing director, Pearl Meyer. Providing a director’s perspective to the panel and insights gleaned from her experiences as a certified public accountant and human resources professional was Jeri L. Isbell. She retired as vice president of human resources at LexMark International, and now serves as the compensation committee chair on the boards of Atkore International Group and SiteOne Landscape Design. Isbell also serves on the compensation committee of Spartan Motors. What follows are select questions from directors and the panelists’ answers, chosen and edited by NACD Directorship Editor-in-Chief Judy Warner.

How do we make sure we are not creating a social problem when a CEO is making so much more money than the average employee?

Means: Let’s be honest: Executives make a lot of money, there is a market for their talent, and we can tell you what that market is worth. Then there are times when we review the market data and we know it’s not a year for a pay increase. The data may have gone up, the company may have done reasonably well, but the base salaries of the executives are already positioned very well against the market. And yet the executives get salary increases. We all as individuals, including myself, determine our value to an organization based on what we’re paid. I think we can all do a better job of managing the expectations of our executives around annual raises.

Ferracone: I also think this comes down to values—not value, but values. Yes, we need to change the mindset around the expectation that there will be a raise every year. Another point: succession. If you have CEO succession planned, that’s really useful because it helps diffuse how reliant you are on one person—the CEO. The more reliant you are on one person who has a lot of star power, the higher the pay could be.

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