With 50 years of combined experience, we have come to know and identify the characteristics of an effective compensation committee chair. The most effective committee chairs have a significant impact on how well the committee functions, often by exhibiting similar characteristics.
Note: For purposes of this article, references to “committee” and “committee chair” relate to the board committee that is responsible for executive compensation, leadership and human capital matters.
Here’s our list of the top five characteristics of an effective committee chair:
Be process oriented.
Annual Calendar: The committee chair insists on managing the committee’s activities aligned with the charter against a comprehensive annual calendar, allowing it to be dynamic and flexible to account for evolving priorities throughout the year.
Meeting Cadence: The committee chair ensures that preparation for each committee meeting begins several weeks in advance of the meeting. This allows ample time to confirm meeting priorities and prepare presentation materials, with multiple opportunities for feedback on key agenda items.
Two Bites at the Apple: Advance planning allows the committee chair to be thoughtful about which topics the committee may effectively review and act upon in one meeting versus which topics would benefit from more than one meeting, which can lead to better, more-informed outcomes.
Executive Sessions: The committee chair routinely schedules executive sessions for the committee to meet and discuss sensitive matters without company management present. Debriefing Session: The committee chair arranges for debriefing sessions with company management and the committee’s outside advisors to confirm approved decisions, open issues and next steps.
Focus on the value of a team.
Liaise with Management: The committee chair appoints a person on the company management team to be the principal liaison between management and the committee. The committee’s management liaison is typically instrumental in organizing all aspects of the committee meeting process. Equally critical, the committee’s management liaison can “quarterback” key input from the various company management functions.
Maximize Each Contributor’s Strengths: The committee chair will learn the strengths of each committee member and key executive in order to leverage their strengths and foster more informed decision-making.
Be a good listener.
Be Open to Education: The committee chair will insist on regular briefings from company management and outside advisors on pertinent trends and governance developments so that the committee may factor them into its decision-making.
Be Open to Alternative Perspectives: The committee chair appreciates that there are rarely absolute “rights” and “wrongs” in executive compensation. Fully vetting all perspectives often leads to more informed decisions.
Challenge ideas to promote understanding.
Be Willing to Challenge Management: The committee chair challenges company management to articulate the business case for management proposals, including the expected impact and implications of its proposals.
Encourage Committee Members to Challenge Colleagues: The committee chair encourages committee members to challenge each other’s views and opinions to take advantage of their collective knowledge, experience and perspectives in evaluating and responding to the company’s business circumstances.
Focus on committee evaluations.
Embrace the Intent: Board members are typically highly accomplished professionals, some of whom find self-evaluation exercises to be an unnecessary use of their time. In our experience, effective committee chairs will fight against that sentiment and embrace the evaluation process as a vital governance tool.
Make Evaluations Impactful: The committee chair ensures that the committee’s annual performance is subject to a well-designed evaluation process that identifies the committee’s and its members’ strengths and areas for improvement. The committee chair will use the evaluations to promote discussion with the committee members and determine if there are actions that can make the committee more effective.
Tone-Setting for the Organization: Effective committee chairs appreciate that their attention and commitment to their own evaluation processes will serve to set the tone for the entire organization.
While the characteristics described above may seem obvious to many of us, too often we confront the consequences of committee chairs who do not focus on these characteristics and how it leads to suboptimal results for the board, the organization and shareholders. Accordingly, we try to foster an environment that continually reinforces and promotes these characteristics for our clients.