By: Dana Wilkes, Senior Affiliation Manager
Sheshunoff Consulting + Solutions Editor’s Note: In this month’s newsletter, we are pleased to share a recent article written by one of our CEO Affiliation Program facilitators, Alan J. Kaplan of Kaplan Partners. Alan’s article was previously published on BankDirector.com in November 2019, and he will be leading a main session entitled “Banking 2020: The War for Talent Continues” at our CEO Affiliation Program meetings this spring.
Rebranding the Compensation Committee
By: Alan J. Kaplan, Founder & CEO, Kaplan Partners
It has long been mandated that publicly traded businesses must have a compensation committee which reviews and sets the pay and benefits for corporate executives, and most non-public financial institutions have followed suit. Most “comp committees,” as they are affectionately called, thus spend the vast majority of their time focused on the institution’s pay practices—including establishment of competitive salary levels, and navigating the complexities of how to establish performance driven and appropriate short and long term incentives. While the need for this core function of the comp committee remains, it is long past time for the focus of this committee to change.
The label of compensation committee suggests that it is most important for the committee and board to focus on paying executives properly—again, a core committee function. However, any good human resources leader would suggest that compensation is only one piece of the puzzle when it comes to attracting, developing, motivating and retaining top talent. In today’s highly competitive banking talent environment, we would argue that the focus on the board comp committee must broaden to reflect this dynamic.
Compensation committees should in fact be the central governance repository for all vital elements of strategic human capital management which is in the line of sight of an engaged board of directors. This should include obvious topics such as monitoring ongoing CEO succession management, executive succession for other C-suite roles, diversity and inclusion initiatives, and emergency succession plans. In addition, boards should be interested in talent development initiatives a level or two below the C-suite, depending on the institution’s size. And, to add teeth to this enhanced focus on human capital, the comp committee should make sure that talent development and succession objectives are included in the basis for calculating incentive compensation for the organization’s leaders. A greater accountability for “grooming your own successors” will get more attention from executives when there is money on the line.
A number of institutions have rebranded their comp committee to emphasize this broader focus. While there is no standard moniker of preference, the messaging to employees and management about the importance of people becomes clearer with a new committee identity. The subtle shift of “compensation” to later in the committee title can be reinforcing as well. Some of the many committee name variations we have seen include:
- Human Resources and Compensation Committee
- Human Capital and Compensation Committee
- Management Development and Compensation Committee
- Human Capital Management Committee
- Human Capital, Diversity and Compensation Committee
The naming options for rebranding the comp committee are numerous of course, and the symbolism of such a name change can be powerful. While many institutions’ comp committees do in fact focus on the broader human capital agenda, many have yet to rename the committee to exemplify their broader function and intent. Formally altering the committee name and charter in the bylaws is a very powerful reinforcement of this positive expanded committee focus.
In the course of our travels, every CEO remarks that “people are our most important asset,” and boards support this contention. Yet the emphasis on compensation above other critical aspects of human capital management at times still distracts comp committees from the necessity of today’s broader charter. Sadly, we still encounter some boards operating with a “personnel committee” in both title and mindset. This is so last century.
To be sure, structuring the right compensation programs for bank leadership remains critical. But ignoring the equally important strategic aspects of human capital management that should also be on the board’s agenda cheapens the supposed commitment to employee development, diversity and inclusion, and management succession. It’s time for boards to put their money where their mouth is and change the name of their compensation committee to reflect the critical focus on strategic human capital management.
Alan J. Kaplan is Founder & CEO of Kaplan Partners, a retained executive search and talent advisory firm headquartered in Philadelphia. You can reach him at 610.642.5644 or alan@KaplanPartners.com.