Who's the boss: Executive compensation administration governance

by on June 30, 2009 · 0 Comment POSTED IN: HR Info Center

Compensation administration and independent consultants

We’re seeing on the governance side, in a hearing before the House, it was recommended that corporate compensation administration boards rely on independent executive compensation consultants.

We’re seeing this directly in our business as well frankly that we’re asking the question more and more in terms of who are we engaged by. Are we working directly with the board? Are we engaged by the board? Is the board our client? Or are we working with management and management’s paying the bill and we’re representing management?

In terms of best practice I compensation administration, what we’re seeing is particularly in larger organizations, there’s oftentimes a need for almost a dueling consultant role where the board has hired their executive compensation consultants. Management has done the same. And there’s kind of a coming together of the minds with both sides represented by the expertise of the consultants.

Executive compensation administration consulting services
That said, there’s certainly a growth in organizations that offer nothing but executive compensation administration consulting services. And by design, that’s our goal is to really be able to proclaim independence to their clients and to those boards.

In fact, in a Fortune 1000 review of proxies for the Fortune 1000, 40% of boards are relying on independent executive compensation consultants. That’s a trend that is up significantly. And now, we anticipate that it will continue to grow.

It’s really I think insightful because we’re talking about the largest 100 companies in the country. And they’re relying on executive compensation consultants not from the large firms that we all know the names of but from some of the smaller firms, more of the niche shops that focus on nothing but executive compensation – these Fortune 100 companies who are relying on boutique executive compensation firms.

In addition, it’s part of that conflict of interest. They want to make sure that the advice that they’re getting is not dependent on some other product sale or some other service. It’s the same issue that we saw with Enron and the independents associated with the audits. From a best practice perspective, they’re looking for that independent executive compensation assessment.

Edited remarks from the Rapid Learning Institute webinar: “Executive Compensation Trends: New Benchmarks & Changing Regulations” by Edward Rataj and Kevin Nussbaum

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