Editor's Note: As noted in last week's Society Alert, the Society Alert is on hiatus this week during the Society's National Conference. In the interim, I am featuring noteworthy, recent Q&A (on an anonymous basis) from our invaluable Society Huddles.
Question: We are reviewing the services provided by our compensation consultant and are interested in hearing about the level of involvement your compensation consultants have with your management team and the board to ensure whether there are areas where we could better utilize the consultant.
For example:
- Is your compensation consultant proactive about keeping the company informed about potential issues down the horizon?
- Does your consultant attend all compensation committee meetings (either by phone or in person)?
- Do you have regular interaction between meetings?
- Do they assist with CD&A review?
- Do they provide guidance on anticipated proxy advisor recommendations?
- What is the extent of their involvement with compensation plan program and design changes, and at what stage do they become involved in such decisions?
This question generated a lot of activity and many excellent answers, including:
- Our compensation consultant comes to every regular Compensation Committee meeting, and is involved in plan design and review. At each meeting, the Compensation Committee meets with the consultant in executive session, without any members of management present, to discuss any sensitive compensation issues. They do a legislative update each meeting, provide benchmarking of the company's compensation program against our peers at least annually, and participate in the drafting of the CD&A.
- Our compensation consultant attends all Compensation Committee meetings, briefs the entire Board annually on executive compensation trends and developments, and provides updates on other developments to the Compensation Committee as events warrant. They also review and comment on drafts of the CD&A once it is populated with most of the data, as well as all executive compensation plans, forms of grant agreements, etc., prior to their submission to the Compensation Committee and/or Board for approval. They are typically involved after a serviceable draft of the relevant document has been reviewed internally - typically at least two weeks before our mailing date (as applicable) or longer for more complex documents, such as the CD&A. Their comments typically include insight on proxy advisory and investor reaction to the CD&A and plan documents.
- Our compensation consultant engagement proceeds along the lines similar to that described in the previous post. Also, when our equity plan is up for vote, the consultant is engaged in the design and review of the plan, and submits the proposed plan to ISS for scoring under ISS' equity plan scorecard.
- Our compensation consultant attends every Compensation Committee meeting either in person or by phone, participates in executive sessions as requested, and is involved early on with management if there is a management proposal regarding compensation for the executive officers. The consultant reviews and participates in drafting the CD&A (however, our prior consultant did not). At least once a year, the consultant provides a trends update to the Compensation Committee and also presents on changes in ISS/GL policies (our prior consultant did not). Management does pro-forma ISS analysis because we subscribe to their service, but the consultant is very knowledgeable on this as well and reviews the analysis with the Committee after each proxy season.
- Our compensation consultant is proactive in keeping us informed about potential issues on the horizon. They only attend our Compensation Committee meetings on an ad-hoc basis when the Committee requires more technical expertise and input, and usually they attend by telephone. Management has regular interaction with our compensation consultant at various times throughout the year, i.e., proxy season (CD&A review and shareholder advisory firm guidance), when developing an incentive program, or when benchmarking compensation statistics for the Board or management. We develop the structure of a document or program first based on management and the Board's input, and then we pass the document or program along to our compensation consultant for review and comment.
Access additional resources on our Compensation Committees, Executive Pay, Say-on-Pay, Pay for Performance, Pay Ratio, Disclosure Reform, 2017 Proxy Season, Annual Meeting, Shareholder Engagement, Institutional Investors, and Proxy Advisors topical pages.
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