“What is our job?”: Challenges facing today’s compensation committees

August 2013

On July 9 and 10, the Compensation Committee Leadership Network (CCLN) convened in New York to discuss challenges facing compensation leaders in today’s large companies. This ViewPoints summarizes network members’ discussion on three important topics:

  • Clarifying the committee’s responsibilities with pay for performance programs
    Members discussed four questions related to evaluating and executing pay-for-performance programs: How are performance metrics set and evaluated? When should the committee exercise judgment in overruling formulas? What are the compensation committee’s responsibilities for line employees? How does the compensation committee chair communicate pay philosophy and outcomes?

  • Responding to popular opinion about executive compensation
    While sophisticated institutional shareholders may not be concerned about the absolute value of a high-performing company’s executive pay packages, the vast majority of Americans believe that, overall, executive compensation is too high. Many members of the public hold that executive pay over certain levels (e.g., $1 million) is never appropriate, no matter how well a company is performing. Public dissatisfaction with compensation levels can create challenges for a company and board, particularly the risk of misplaced regulatory reaction. Members discussed potential responses, including improving executive pay disclosure and better explaining the compensation philosophy for the full company.

  • Evaluating the 2013 proxy season
    Meridian Compensation Partners briefed members on the 2013 proxy season, noting that it was largely similar to 2012. Members discussed two recent changes at Institutional Shareholder Services relating to the importance of their qualitative assessment of pay packages and their opinions on the quality of performance metrics. Members also discussed the high-profile annual meeting at JPMorgan Chase and its implications for the separation of the CEO and chairman roles.