Equilar Executive Compensation Summit 2019 Session Roundup
The 2019 Equilar Executive Compensation Summit took place in Nashville from June 19 to 21. Equity Methods had the pleasure of participating in two panel sessions and attending numerous others. Here are our key takeaways.
Pay equity is as much about strategy as it is compliance.
Our first panel featured Takis Makridis alongside Brit Wittman (Applied Materials) and Kathryn Neel (Semler Brossy). The discussion focused on the interplay of the different goals of pay equity efforts, and how these different goals are usually complementary. Being legally compliant is necessary, and the ethics of paying fairly and equally are clear. But it’s the ability to actually drive strategy that can really increase the ROI of pay equity efforts.
The baseline of any pay equity effort is the quantitative analysis to identify both the “adjusted pay gap” (controlling for valid drivers of pay, like role and performance) and the “unadjusted pay gap” (a simple comparison of averages). These give insight into primary pay drivers, sensitivity to various factors, equality of pay for similar work, and the presence of any unexplained outliers.
From that point, a pay equity effort can springboard into other areas that drive business strategy. For example, would pay equity be served by improving the job architecture (whether simplifying, specifying, or making consistent across the firm)? If performance ratings are major pay drivers, are there structures and training in place to make sure those ratings are consistent and free from bias themselves? Does the data analysis indicate a glass ceiling? Are there places where upskilling and educating managers would have outsize benefits—be it specific locations, business groups, or across the board?
Pay equity should be much more than mere compliance or adjusting some individuals’ compensation to make the numbers work. It should be a catalyst for broader organizational improvement that will drive strategy and results.
LTIP vehicles need to be consistent with strategy, not outside expectations.
Our second presentation focused on the use of different equity instruments within long-term incentive plans (LTIPs). This panel featured David Outlaw, Michael Hayes (Brighthouse Financial), Eric Hosken (Compensation Advisory Partners), Martha Steinman (Hogan Lovells), and Russ Miller (ClearBridge Compensation Group).
Despite external pressure for homogenization in LTIP design, it’s critical that the package fits a company’s specific incentive and retention goals. For example, the group discussed performance shares based on relative TSR. These make good sense for companies in cyclical, commodity-driven industries, as well as mature industries with strong competition. They’re popular with shareholders and proxy advisors to boot. But relative TSR is not for everyone. For instance, an early-stage, disruptive technology company with few peers and huge growth aspirations isn’t seeking outperformance—they’re seeking a moonshot! For a company like this, a better fit can be a twist like awards—or even that old favorite, stock options—that vest upon reaching price hurdles.
“One size doesn’t fit all” isn’t exactly a novel insight. Nonetheless, it’s worthwhile to step back, consider the specific goals of a plan, and construct a package that works for you—even if that means taking a less trendy approach.
Culture starts at the top.
A consistent theme of the conference’s general sessions was that culture starts at the top. The keynote speaker was Adam Bryant, author of the New York Times’ “Corner Office” column. Bryant’s discussion focused on the most important drivers of high-performing teams and strong cultures, based on patterns that emerged from his interviews with hundreds of CEOs.
These drivers include big-picture items like clear, simple plans and expectations that everyone in the organization understands. Also included are nitty-gritty concerns like over-relying on email. Between these two extremes are the soft issues that collectively create a culture. Examples include setting aside ego for the team’s sake, treating one another with respect (and ensuring others do the same), and having what he calls “adult conversations” rather than letting issues fester.
In the end, an organization’s culture is the sum of the people in it. And the people are a reflection of the behaviors that are expected, tolerated, or rewarded. As leaders, it’s critical to exhibit, set expectations for, and reward the actions that nurture the culture we want to see.
The CHRO is the linchpin of strategy execution.
Building on this theme, several chief human resources officers (CHROs) led a roundtable discussion of their critical, and growing, role in executing strategy.
An article published on Forbes.com last year sums it up: The labor market is hot, every industry is fighting for talent, and CEO after CEO says human capital is key to their strategy. This puts the CHRO at the forefront of addressing needs that are vital to the company’s success.
At the conference, roundtable participants pointed out the importance of managing softer issues that other executives might not have their eye on—whether from an inability to notice or from deliberately looking the other way. One example is making sure that pay decisions at all levels make sense for both the individual involved and the company as a whole. Another is managing the cultural effect, years down the line, of a potential shift in the mix of employee types. The CRHO may even have to nip issues in the bud—sometimes painfully—if individuals in leadership positions fail to live up to the company’s values.
In short, although CHROs don’t own organizational culture, they are its stewards. And while the operational tasks of workforce hiring, training, and compensation are a necessity, facilitating the culture is what enables the HR function to take the whole company forward.