The environment surrounding executive compensation is becoming harder to interpret. Regulations are evolving, shareholder expectations are diverging, economic signals are mixed, and the geopolitical landscape is volatile.
Given such uncertainty, Semler Brossy has been hosting rigorous, far-ranging discussions as a firm on the role and future of executive compensation, governance, and Human Capital Management to help boards navigate present challenges. Volatility and uncertainty enhance the importance of executing on mission-critical pay and talent objectives with as few hiccups as possible.
Some of these discussions, outlined below, shape how we’re thinking about the market, advising clients, and prioritizing research:
There’s a working hypothesis in our conversations that boards with strong internal pipelines are better positioned to negotiate pay for all executives. We’ve seen, anecdotally, that a board that has credible succession candidates for the CEO and other CEO direct reports acts differently when setting the current executives’ pay, and that dynamic has ripple effects across the company. We’re curious whether the data bears that out and whether this is a story worth exploring further. In the current, dynamic environment, we also believe that it is more important than ever for boards to double-down on their succession planning processes for the CEO and C-Suite.
Goal-setting is one of the most challenging responsibilities boards face, especially in today’s era of persistent volatility. Recent changes to ISS guidelines and FAQs expanded the definition of “performance-based pay” to include long-vested time-based options and RSUs, and typical PSU programs are being re-imagined in certain contexts. Before going into the strategy around designing incentive plans, we’ve decided to dive into the data – how have median payouts shifted in recent years, and what does this tell us about the goal-setting process? We’re not sure the answer is straightforward, but it seems like a question worth pursuing with real data rather than intuition, and a worthwhile discussion for boards to consider.
These questions are shaping how we’re advising clients and where we’re prioritizing research. In many cases, the answers aren’t settled—but the implications for how boards approach compensation decisions are real. We’ll continue to explore these themes in upcoming research and conversations and fill in some of the blanks in follow-up posts. If you are wrestling with these issues as well, we’d welcome the dialogue.
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