4 ways to work more efficiently with your compensation consultant
Whether you’re a private or public company, big or small, you likely face a universal challenge: attracting, retaining and subsequently motivating executive personnel to lead your company.
Finding the right mix of pay and benefits and aligning those components with the success of your company can be difficult and time-consuming. Often, formulating executive compensation plans means performing in-depth market analysis, scouring thousands of data points, and trying to fit that information into a strategy that works for your unique company. For public companies, the challenge is further compounded by the fact that executive compensation is a highly visible issue that's voted on by shareholders at the Annual General Meeting (AGM), and publicly disclosed.
But, by turning your executive compensation process into a tool and eschewing the mentality that it’s simply a line item, your company will be poised to find the right people, at the right time.
Utilizing outside executive compensation consultants can help bring a fresh and objective eye to your company’s compensation process and plans. Augmenting those consultants’ insights with your own software that provides access to relevant data makes the entire undertaking even more productive.
How to work more efficiently with your compensation consultant
Here, we outline four steps to a more efficient and effective relationship with your compensation consultant, so you can be sure your executive compensation plans are in shape come proxy season and your next AGM.
1. Come prepared
Even if your compensation committee or human resources team hasn’t decided the details of a particular plan, providing a high-level view of what you’d like to achieve is key.
When engaging an outside consultant, consider whether (and how) you want your compensation strategy to incorporate your company’s individual mission. Come prepared with insight into how the process has been handled in the past, as well as its strengths and weaknesses.
There might be components of the process (for example, how your company’s compensation peer group is selected) that you’ll want to keep in place. On the flipside, there might be components to what you’ve done in the past that no longer seem to work (maybe your company’s ratio of cash vs. equity isn’t providing long-term financial sustainability).
To ensure a more efficient meeting, answer the following questions before you engage an outside executive compensation consultant:
- What has changed at your company in the past few years?
- What does your company include in its typical executive compensation package?
- What is the makeup of your company’s standard short and long-term incentives?
- How did actual pay compare to incentive plans?
- How does your company incorporate its mission and vision into decisions about metric-driven pay?
2. Keep an open mind
“It’s the way we’ve always done it.” That’s a common response to a compensation consultant who asks, Why?
Change does not come easily. But with innovative approaches, your company can be better prepared to weather both good and bad times. Sometimes that means looking at the market from a different perspective, or adding perquisites that you might have left out in the past. Being open-minded is critical when working with an outside consultant. After all, their job is to provide new insight and fresh perspective.
Consider the ways executive compensation practices have changed over just the past few years:
- Mandatory pay-versus-performance disclosures: The SEC mandated pay-versus-performance disclosures in company proxy statements beginning in 2023, requiring public companies to disclose the relationship between the compensation actually paid to their executives and the company’s financial performance.
- Cost-of-living concerns have increased compensation scrutiny: “The cost-of-living has heightened investors’ attention to executive pay increases, with a particular focus on changes in salary and other fixed elements such as pension contributions,” Daniele Vitale, head of ESG in U.K./Europe at Georgeson, told Diligent Market Intelligence in an interview. “In the past, salary increases that were in line with those awarded to the wider workforce would generally have been considered routine and acceptable, both in the U.K. and across Continental Europe.”
- An increased focus on resiliency: “We ask that companies explain how their executive compensation program is resilient and, thus, will deliver reasonable pay outcomes across a broad range of market environments,” BlackRock said in a recent whitepaper. “In this context, resilient means that programs will adequately reflect the financial performance that shareholders are experiencing.”
3. Demand data — or better yet, come with your own
Decisions about executive pay shouldn’t be restricted to the advice and experience of a group of compensation professionals. Leveraging data is critical to ensuring your company’s compensation process is competitive and effective. It’s also vital to meeting requirements around transparency.
Consider working in tandem with a data intelligence partner to incorporate science into your decision-making. A data partner like Diligent Market Intelligence can work with an internal team or your company’s external consultants to provide access to more than a decade’s worth of compensation data, as well as help formulate appropriate peer groups for benchmarking and perform an individualized pay-for-performance analysis.
Below are some common ways big data and real-time insight can support your executive compensation process:
- Equip company boards with in-depth analysis of pay practices compared to peers’ practices
- Anticipate investors’ response to changes in pay and obtain market intelligence around investor sentiment
- Benchmark current pay practices against industry peers, to support decision making and ensure regulatory compliance and market competitiveness
While an outside consultant can provide advice in some of these areas, without data, your company risks making decisions in a dangerous silo.
4. Remember that you’re in charge
In some circles, executive compensation consultants have been criticized as for-hire advisors who look for ways to increase pay packages. Ultimately, however, these advisors don’t have the final say on how your company structures and strategizes executive compensation.
A healthy mix of internal knowledge, outside perspective and data-driven insight can ensure your decision-making is rooted in objectivity and transparency, while remaining unique to your company’s near and long-term goals.
Technology that complements your consultant’s work
A compensation consultant can bring the critical insights and fresh perspective your company needs to craft compensation plans that attract top talent, and also satisfy shareholder demands.
But with your own market intelligence software, you can take control of your compensation narrative while enhancing the effectiveness of your consultant’s work.
Diligent Market Intelligence offers a broad, up-to-date global data set and powerful compensation benchmarking tools, including exclusive access to Glass Lewis’ compensation review analysis, so you can conduct your own comprehensive analyses for executive compensation decisions and risk oversight.
Additionally, by using software, you can generate your own peer groups and perform an in-depth pay-for-performance analysis against a wide variety of performance metrics. And, you can use the data at your fingertips to better understand and compare executive compensation practices against your industry peers.
Having these tools in your executive compensation toolkit ensures that you’re armed with the best data and benchmarking, so you can get the most value possible from your compensation consultant.
Learn how Diligent Market Intelligence can take your executive compensation plans to the next level by requesting a demo today.
