Compensation Committee Preparation

As we approach a new year, it is time to reflect and review the goals and accomplishments of the current year and the hopes and opportunities for the year to come.  The pandemic, the labor shortage, a competitive workforce, and benefit incentives are just a few factors that are playing a large role in ensuring Compensation Committees are staying competitive in recruiting, retaining and rewarding employees.  In the next few weeks, Compensation Committees will begin to meet to discuss several of the following areas to prepare for the upcoming year.

  1. Short-Term (STIP) and Long-Term (LTIP) Incentive Plans

Incentive plans build a strong, performance-based culture across the company to work together to attain a common goal. Short- and Long-Term Incentive Plans reward key executives for their individual contributions in achieving company business strategy goals, including to increase profitability. 

  • Examine the goals and performance used in annual incentive plans in the past and determine if it should be adjusted for the following year based on the new goals that are set.
  • Review incentive plan documents and employment agreements to ensure all documents are compliant.
  • Based on a volatile market, it may make sense to set financial goals for six-months and revisit mid-year to see how things are aligning.
  • Determine if it makes sense to broaden performance measures to allow employees to reach the goals set in this economic environment. 
  • Implement long-term incentives to ensure a “golden handcuff approach.”  With a competitive workforce, ensure key executives have a financial reason to stay with your company in the future.

2. Human Capital Strategy

Compensation Committees have taken on an active role in the human resource realm focusing on employee recruitment and development, succession planning, and oversight of pay equality.

  • Most important in today’s ‘work from home’ setting, review and revise all human resource policies that may include, but not limited to, the following: work hours, company property, privacy, social media, etc.
  • Review peer groups within the company to ensure there is no pay discrimination to individuals due to gender or race.
  • Ensure the succession plan of the next generation of leadership is communicated to those involved and key executives are properly being trained and retained appropriately.  

3. Environmental, Social and Governance (ESG)

There is an increased awareness of current issues relating to reduction of carbon footprint, diversity and inclusion, employee safety and transparency of important issues.

  • Determine if it is a priority for the company to incorporate these aspects into the values and goals for the years to come.
  • Measure the performance of the ESG goals by using qualitative data to ensure it is something the company can realistically provide incentives for before incorporating into a plan.

Compensation Committees have a general responsibility to oversee the Company’s benefits and programs, particularly focusing on key executives.  As the work dynamic changes in today’s world, there is more focus on Compensation Committees and their mission in recruiting, retaining and rewarding key executives.