"PAYING FOR GOOD"

Series 2 Episode 1: Seymour Burchman and Blair Jones, executive compensation consultants on 'A view from America'

October 08, 2020 Corinne Carr Season 2 Episode 1
"PAYING FOR GOOD"
Series 2 Episode 1: Seymour Burchman and Blair Jones, executive compensation consultants on 'A view from America'
Chapters
"PAYING FOR GOOD"
Series 2 Episode 1: Seymour Burchman and Blair Jones, executive compensation consultants on 'A view from America'
Oct 08, 2020 Season 2 Episode 1
Corinne Carr

In this episode of my PAYING FOR GOOD podcast, you will learn:

  • the prerequisites of a Responsible Reward strategy
  • the five steps to tie remuneration and sustainability
  • how to start thinking beyond paying for strategy.

Your action takeaway

Our special guests Seymour and Blair encourage you to follow up this episode by reading their materials and urging your boards to incorporate the topic of Responsible Reward in their discussions.

Responsible Reward is not tomorrow’s problem, it is today’s. So now is really the time to act. If you don't focus on it, you're just going to be left behind.

TO GET MY WEEKLY NEWSLETTER WITH EACH EPISODE OF THE PODCAST, PLEASE SUBSCRIBE HERE: https://www.peoplenet.ltd.uk/newsletter/

Show Notes Transcript

In this episode of my PAYING FOR GOOD podcast, you will learn:

  • the prerequisites of a Responsible Reward strategy
  • the five steps to tie remuneration and sustainability
  • how to start thinking beyond paying for strategy.

Your action takeaway

Our special guests Seymour and Blair encourage you to follow up this episode by reading their materials and urging your boards to incorporate the topic of Responsible Reward in their discussions.

Responsible Reward is not tomorrow’s problem, it is today’s. So now is really the time to act. If you don't focus on it, you're just going to be left behind.

TO GET MY WEEKLY NEWSLETTER WITH EACH EPISODE OF THE PODCAST, PLEASE SUBSCRIBE HERE: https://www.peoplenet.ltd.uk/newsletter/

[CC: Corinne Carr] [SB: Seymour Burchman] [BJ: Blair Jones]

 CC:

Hi everyone! I'm delighted to introduce to you two guests: Seymour Burchman and Blair Jones all the way from America talking to us from a company called Semler Brossy. Both our managing directors of the company, which specialises in executive compensation consulting. And the way I came across Seymour’s work was when I did my research for my project a couple of years ago. And he was one of the few sources of inspiration that I found at the time writing on the subject of responsible reward. So I know that Seymour would like to retire, but I am going to talk to him well before he takes time to leave the business world to enjoy himself because he's still got so much to write and say about the subject that I'm very grateful he’s sharing his knowledge.

 Blair is also managing director of the firm. So we've got a full agenda for today of discussions around this topic of responsible reward or responsible compensation as it's called in America. And I'll be asking my guests a few questions on the work they've done in that space because they are more advanced in the subject than we are on this side of the pond and also their experience as time evolved. So first of all, who would like to start, would you like to introduce yourself and your role at the firm and tell us a bit about the firm as well?

 BJ:

Sure, Semler Brossy is an independent compensation consulting firm and we spend much of our time with boards of directors working with their compensation committees on the design and administration of compensation plans. We also work with private companies and with portfolio companies within private equity firms. A lot of our work in recent years has started to gravitate to these topics of sustainability and particularly human capital management as compensation committees in particular have found that those issues are important issues for them to consider holistically when looking at incentive designs. I've been with Semler Brossy for 15 years and I serve a number of our firm's clients in the healthcare, consumer products and industrial spaces.

 CC:

What about you Seymour, tell us about your experience.

 SB:

Well, Blair and I actually started on the same day. We actually came over to Semler Brossy at the same time, but we both came from another company. Since I'm older, we've already pointed out the fact that I'm near retirement. I've been at this since 1984 so a long time. Blair started as a young pup a few years after that. And she started working with me and some of my other partners. So I've been at this for, 30-35 years, but Semler Brossy, about 15 years As Blair said. And I focus on all of the same areas that Blair does as well. 

 So it's been an interesting ride because over time things in executive pay have really evolved. Before, a lot of it was about surveys and just benchmarking. And now it's about design. And initially it was a lot about aligning pay with strategy. I think we're evolving actually where we're going beyond strategy becoming more mission and purpose focused. But in any case it's been a long time and we've seen the evolution of executive pay over the last 30-35 years, a fairly significant change in what we talk about and what we focus on, including sustainability, which you talked about as responsible reward.

 CC:

So we'll come back to mission and purpose because these are concepts that keep coming up in this type of situation with responsible remuneration. So Seymour, you've certainly been writing about the subject for a number of years. I came across it a few years ago and really by chance, but I'd like to understand why this interest and how did it come up in your life?

 SB:

Well, it actually traces back to the UN sustainable development goals, which were considered and passed in 2015. At that point, I was really interested in it. And to me it resonated because one, it was the right thing to do. But as I delved deeper. It became more and more to me for businesses about there being a strong business case for doing it since it represented the global needs that needed to be addressed. It seemed to me, it provides a lot of things. It focused on potential opportunities for businesses in terms of things, needs that they could focus on to develop a customer base. At least in the early days, a lot of it was about risk mitigation even before the sustainable development goals.

 As you recall, we had the Bangladesh factory fire. We had Nike with child labour. We had Apple with workers' rights. Those things, as I recall, predated it. Businesses really needed to start caring a lot more about the workers and the communities in which they work. As time went on, it was about opportunities to expand the business and became about risk mitigation and not doing any harm. In businesses like mining, it preserved their licensed to operate. And as we get to later generations, it differentiated companies in terms of their ability to attract talent. It also helped improve their brand and allowed them to attract more customers and provided an opportunity to differentiate on that aspect of it.

 And then as studies started to come in from a variety of academics, we found that companies that actually focused on these things tended to perform better financially and also performed better in the market. And as momentum picked up more and more, there grew a whole sector of market that was focused on impact investing. So there was more and more capital that was searching for businesses that were focused on sustainability and making an impact initially around the environment, but even more so around workers’ rights, hunger, education etc…

 So it started out with being the right thing to do in my mind, and then it more and more became about the business case for doing it. And then the fact that companies that did focus on this thing because it was mitigating harms and risks as well as presenting opportunity that these businesses performed better. And so it shifted from just the right thing to do it. It became good business to do it. So that's the journey I went on. And again, it went all the way back to the UN sustainable developing goals.

 Even though it's slightly different, at least in this country and probably around the world, companies like Facebook in terms of being responsible about what's being published at least, because we have our election going on now, it's being responsible for the content that's on their Facebook pages. Whether it's privacy rights or whether it's the content, more and more companies are being held to account for how they operate. And in your case, responsible reward being able to act responsibly in their business sphere.

 CC:

Interesting, these technology companies, which are very young. You would think they would get it all right. And in fact, they're full of governance flows even though they are only 20 years old!

 Are there some prerequisites that need to exist before a company can design and implement responsible reward?

 SB:

In my mind, yes. And harking back to what I said to your first question, I think it's important nowadays for companies to identify the business case for doing it. And that's not really hard to do. What are the opportunities that are presented? Are there material risks that they need to focus on that can do fairly significant harm if they're not addressed? Also I think communication is very important. They need to communicate what this business case is to both the board and shareholders and really all the stakeholders in the business, which includes customers, employees, suppliers etc. And so communication is very important so that people know why we're doing this. The company knows why they're doing what they're doing and what what's in it for everybody. And, for companies to really have an impact, they need to focus on where they have a material impact.

 So there are a lot of businesses where they may have a tangential impact. But it's really important if they're really going to bring about real change. They need to focus on the things that fall within their mission and fall within the core competencies of the business to be able to really bring about change in those areas. So I think those are some, two or three things that I think companies need to start thinking about before they make this endeavour. So that they have the highest return on investment in terms of addressing these problems and that it aligns with the mission and the core competencies of the business. So, and that through communication, all the key stakeholders understand why the business is doing this.

 BJ:

The great news is that sustainability is now front and centre really across the world, whether it's in the US with the Business Roundtable coming out about the business purpose statement and the importance of thinking about all stakeholders. The Corona virus has really emphasised the importance of that stakeholder model. So we're at a great time to have this conversation. But the risk is that companies do a knee jerk reaction. 

 So what Seymour is saying is really important that you need to ask yourself the questions, first. Is this a measure that is important to our customers and our employees and our communities? Do we have a unique ability to make a difference in it? And could it make a meaningful difference in our business outcomes? Win/win? Are you measuring it already? As with any measure, whether it's financial or otherwise, if you don't understand what you're measuring, you can have unintended consequences. So, I think that this is a really opportune time, but people need to go through a pretty analytic exercise as to what's going to have the highest impact and the highest return.

 CC:

So that concept of materiality, which we've explored as well on other podcast episodes and linking that back to materiality frameworks, like SASB, GRI and others. And each firm should be able to determine what’s material to them in terms of priorities and risks as well. So there's a link back there.

 SB:

The other thing is, I think it's going to only increase in importance as we go on. Things like climate change are only becoming more important that we address sooner rather than later. In our country, that's becoming very clear. We have our fires on the West coast. We have a succession of hurricanes on the East coast. And so it's becoming more important. It also, for our younger people particularly the gen Z is, but even millennials, as opposed to us warhorses from the baby boomers. Focusing on climate change and focusing on things besides what are material benefits for us as individuals, but what's important to society is increasing in importance to them and their buying choices. So it's a way for companies to not only do good, but also to differentiate themselves in the marketplace.

 CC:

So an obvious commercial advantage. So when we look at how we pay executives today …executive pay is always on the radar of investors year after year after year. So, we're always talking about quantum and structure and too much and too complicated, but I'm just wondering, is there something that's missing or that's not working in how we're doing executive pay today?

 BJ:

So executive pay has historically been measuring and focused on financials and stock market performance, and that's where the predominant attention has gone. Now, interestingly many companies actually do use ESG measures today both in the U S and around the world.

 Semler Brossy actually recently looked at the fortune 200 and found that 62% of those companies had some kind of ESG metrics. The issue is that they're pretty low prominence right now. For one thing, they're usually included as an individual measure, which gets a small part of the pie in executive compensation or a modifier of sorts. 

 And the second thing that we found that was interesting is that they tend to focus more on what we would call or characterise as operational types of metrics. So things like safety, customer satisfaction. They really haven't made the migration in both cases to the measures that people are talking about today, whether it's responsible sourcing or responsible packaging or climate carbon footprint reduction, diversity and inclusion. Diversity inclusion has taken a little bit more real estate.

 So, there are two opportunities there. One is to figure out whether a measure like that warrants increased prominence because it is so strategically important and is material to the business. And then the second is to really look at the kinds of measures you choose because they send a signal about what's important and they frame the discussion better in terms of moving the conversation forward and getting at the heart of the issues sustainable sustainability is really focused on today.

 SB:

We started to use sustainability and ESG interchangeably. ESG is Environmental, Social and Governance, just to clarify. So there are lots of terms for it, but it boils down to sustainability, responsible compensation. For us, it's really all about the same thing.

 CC: 

Same here, Seymour. And I think the point, Blair, about what you're saying, a large number of companies on this side of the pond, also use sustainability metrics. But if you look at the percentage that they represent, it can be quite low. Because it's very transparent, everybody can see it. So, if it's really low, I’m not sure it’s sending the right message.

 And also the level of disclosure can be quite opaque. So we don't always know what's under that ‘sustainability’ measure. So these are two observations from this side. Is there something that's not working in what we we've got now?

 BJ:

Well, it's more that there's an opportunity now. What we have had, has worked. And there's a certain component of it, the financial capture. So, if you're a food products company and people want to buy foods with natural ingredients, sustainably sourced…if you build it, they will come. I think the same would be true in retail, which I worked in a lot.

 My niece who is a 20 something said to me the other day, I really liked to buy from this client you work for because I understand they're very responsible in how they source their products. So in that sense, the model has an opportunity to work if you build the link.

 So it takes proactivity from the executive team and the board of directors to really make those links. So where the opportunity is today is to send a stronger signal, where the impact could be that much more material or could move that much faster. If you feel like people are making trade-offs on short term gains versus long-term investments, those kinds of measures can really make a difference. So there's an opportunity to find a space in our short term plans or in our long-term plans to make a stronger statement about what's important in the ESG and sustainability space.

 CC:

Especially if you've got customers who are demanding it! Surely, we've got to adapt to that. So I’ve noticed this dilemma between the time horizon of ESG and sustainable objectives which are by definition very long term vs. the timeframe of incentives, which are typically here 12 months for annual bonuses and three years for ltips and the payment frequency as well. So it seems to be out of kilter in terms of the time horizon. Have you got any thoughts on that?

 SB

A 1-3 year timeframe is typical of remuneration plans in this country. There are things that you might be able to do within that timeframe. So going back to what we were saying about sustainable sourcing, if it's simply switching from one supplier to the other, that may be something you can accomplish in one to three years. But, for example, in the chocolate or candy industry, it may require you to actually educate the farmers on different ways of farming. And when you get to that sphere, the education process is going to take many years to accomplish. And so the typical one to three year timeframe is not going to really help you. Now, of course, you can always focus on strategic milestones in the one to three year period.

 But if you really want to focus on results, what percentage of your product is sustainably sourced, we're talking about five, six, seven, eight years before that's going to come about which doesn't neatly fit in the timeframe of most compensation plans in this country.

 So one starts to need to think about different ways of maybe structuring compensation programmes to be able to capture those things. So it depends. If it's diversity and inclusion in the board, well, you can take initial steps within the first couple of board seats that come up.

 But if you want to have it pervasive throughout the organisation, that's going to take a lot of educational work. It's going to take a lot of changes to systems and processes to make sure that you're not sub-optimising when you do that. With a mismatch in the timing, we have to look at it over a much longer timeframe. So there are things you can do within the typical timeframe of incentive programmes as they exist now. And others that take for longer, particularly if it involves education, like with electrical vehicle, the technology, particularly the battery technology needs to evolve where the ramp up time is much, much longer.

 BJ:

I do think it's encouraging though, that we are seeing more companies, including on your side of the pond, look at long-term incentives for these metrics. Because as Seymour said, on an annual basis you can only often measure milestones, which are important. And frankly, a lot of people's purview is a year's time. So being able to track that, but the longer term timeframe allows you to get to more substance over time. And you see that in the energy companies, in particular, starting to look at that long-term timeframe as an opportunity with these measures.

 SB:

I kind when we talk about the substance, it's really focusing on the outcomes and results, as opposed to the things we're going to do. Because, if we pick the wrong approach, we may be able to hit those milestones, but if we picked the wrong milestones, it may not in fact end up showing up in the results that you're trying to achieve.

 So, ultimately we'd like to spend more effort and messaging around achieving the results or the outcomes, as opposed to just the milestones. But milestones, if it's a good strategy, are perfectly acceptable. It's just that the proof is sort of in the pudding.

 CC:

But, if it's too far out in the future, you may have senior managers or even anybody in the firm saying “well, I won't be here by the time this pays out.” So we need to make it something that people can relate to. So that's why the milestones over 12 months, or over two to three years are more achievable, something that you feel you can contribute to. Because if it's 10 or 15 years, who knows? who cares? people might not be in their current jobs. So it's striking that balance but observing that these ESG objectives are very long term. But, we can't really make ltips over 10 or 15 years.

 BJ:

10 or 15 is probably too far out. But I think, especially for executives, having a three year horizon or even a five year horizon is possible. Not to get too technical, but we have done a lot in recent years to make sure that executives continue to best based on the actual results to retirement.

 So therefore they stay tied. Because a lot of the times, the things you're doing today set up what's going to happen. So it's not a perfect system. And we’ve got to find the right timeframes. And even at three and five years, you might be at milestones, but hopefully you're at more substantive milestones. And it's a balance. You need both because a lot of people's way they operate is from a year to year basis.

So you need to hit them where they are with things that are meaningful in the timeframe they can see but you also want to give them the outlook of the outcome you're trying to get for so they know what they're striving for.

 SB:

It probably goes also beyond just the best thing, because at least in this country, I suspect it's also true. I'm on your side of the pond, that ownership requirements, which could even extend beyond retirement.

 CC: 

Yes, we call them post-cessation guidelines.

SB:

They’re increasingly important whether there are ownership guidelines or holding requirements, they create even a longer term timeframe. So it's not only about the comp programme, but it's also about the  ownership requirements and holding the stock long term. And again, presumably if these things, as many researchers have found, does affect financial and long-term stock performance, then if we're successful, it should end up in a positive result in those spheres.

CC:

So, very much long-term, both from an ESG objectives point of view and the related compensation.

Let's talk about the investors’ side now because they are very vocal when it comes to remuneration matters. And I'd like to understand from your point of view if you've noticed a change of focus in what they are looking at, when they're looking at remuneration, is this something that you observed that's been done differently now from maybe going back a few years?

BJ:

There's no question that the conversations that clients are having with investors right now have shifted. They originally were almost 75% about pay and then 25% about governance. Now, as my clients are going through their shareholder outreach last year and even more so this year, ESG issues are taking the fore. It's not necessarily something that the investor started directive on that they want to see a measure in the compensation plan. 

But they are being quite probing as to how can you prove to me that you care about this? And compensation becomes one part of the equation on that. So I think that, that that's what we're going to see and to the extent diversity and inclusion is a big issue in our country and across the world, that issue is getting a lot of attention and both the visibility of the measurement. So for instance, the New York city controller's office has asked the largest companies in the US to disclose more of their data that they file, their equal employment opportunity data. And so I think it's a natural progression towards having those measurements be more transparent. And when they're more transparent and there are more standards, then it translates to pay.

SB:

We also find that the institutional investors that have a long-term focus and the ones that seem to interestingly have the most long-term focus are the passive investors. So the ones that have the index fund, so BlackRock, State Street, Vanguard are the most outspoken on these issues because they have to stay in these companies for the long term. It's really driven by who's in the index. And they have to adjust their portfolios to coincide with the index. So BlackRock, Larry think, has been very outspoken for a number of years about the importance of sustainability. And for State Street and Vanguard, it's a bit more recent, but they've also focused as well as the pension funds.

But it's becoming more and more of an issue with them because they have to take more of a long-term focus and more of an impact focus. And plus there have been a lot of funds now, which are attracting more and more capital. Here, we call them impact funds whose purpose is to ensure sustainability and focusing on environmental, social and governance issues.

CC:

Absolutely and they do ask very probing questions when it comes to that link between sustainability and remuneration. Something that I've noticed in my own analysis of remuneration reports is that sometimes I'm surprised to see that there is some duplication in terms of the measurement of the metrics and what we're actually looking at in both bonuses and long term incentive plans. And I'm just wondering, are we paying twice for the same thing?

BJ:

So that's a question that comes up quite a bit from the investment community. They want to understand. And there can be very good reasons for a company, for instance, that's in turnaround who needs to just hit their cash flow targets, for instance, to hit it in the short term, and to hit it in the long-term. And that is their measure for a period of time. 

More typically for companies who aren't in a turnaround or who aren't in some sort of transformation, you would expect the annual plan to be more about the inputs and the long-term plan to be more about the outputs. So you might see more operating types of measures, whether it's sales, you would see profitability, of course, you would perhaps quality, those kinds of measures inputs into the annual incentive plan.

And you'd see more outcomes on the long-term incentive plan. So EPS growth, ROIC, relative TSR etc. Increasingly, we're trying to find a place for ESG metrics as well. So, I think that the way we were talking about it earlier probably fits the typical model where your annual plan would be either a scorecard or milestones around those that you're trying to achieve that make a difference on a year to year basis. But that long-term plan picks up the outcomes.

CC:

Yes, I've seen some measures being picked up both on the bonus and ltip. And in fact, even within bonus, the same measure under ‘personal’ and ‘strategic’. So I think it just needs a bit more clarity in some cases.

What about the potential duplication between financial and ESG measures? Clearly, one of the reasons, apart from the right thing to do, that we are including ESG metrics in compensation plans is that they have a commercial impact, therefore, a financial impact. So are we, again, duplicating the payments between financial and extra financial measures where extra financial measures have an impact on the financial performance of the firm?

BJ:

So , if you're in retail or in a company and you know your customers want responsibly sourced products, and they want more natural products or helpful products, those kinds of things may show up in the financials. But for the kinds of things that Seymour was talking about, the chocolate companies are a good one because they have this initiative among themselves the different manufacturers called ‘Cocoa Life’, where they're really working to make sure that they are able to source a very important ingredient to their products over the long-term so that investment would not show up in the financials right away.

So it may be that there's some distinction between things that are going to get picked up in the financials, because if you build it, they will come. And those things that are longer term investments that want to make sure that you don't take short concert compromises along the way that would hurt the long-term investment in those very important types of items.

The same thing would be true when you look at the energy companies and the efforts they need to make to reduce their carbon footprint. Those kinds of investments are not going to show up in the financials right away. 

It is a situation where that is what their customers want, but 1) it's very important to them from a signalling standpoint, to communities at large and to their customers, but 2) the investments aren't going to pay off in the financials right away. So that's a really good thing to measure and to make sure that you're continuing to make progress towards.

SB: 

It seems to me when we talk about sustainable sourcing, like with cocoa, it's beyond just being able to say it's a sustainably source. But in fact, if you don't do that the raw material or the ingredient, if you don't pay attention to the sourcing, is eventually going to be exhausted, which is really going to put you out of business.

So it goes beyond the license to operate. It's actually the ability to operate, because if you don't sustainably source we won't have cocoa anymore. And without cocoa, unless we come up with an artificial version, in effect the companies are not going to be able to produce the product.

CC: 

In fact, it could cost money upfront to do all this research and development and come up with alternatives and all of that in order to maintain that the ability to run the business later on and potentially increase the revenues as well.

So it's not, as you say Blair, always very aligned from a finance and extra financial point of view. I know you've written a number of articles, as I mentioned before on the subject, but if you were to give advice to our listeners on how to tie executive compensation and sustainability, what are the steps that they should be looking at? Have you got a little methodology you can try, you can share with us?

SB:

We see it is at least five key steps. 

1.    The first is re-examining the context. And here again, in terms of the business cases, where you can have a material impact on the results. So you sort of need to say, well, where can the company have the biggest impact and will putting it in the pay programme make a difference? Because there are lots of ways to get the focus including scorecards, which may or may not be related to pay, but for the stuff that ends up, particularly in company-wide compensation programmes, you want to focus on the things that really make a difference. So step 1 is re-examining the context.

2. The second is really clarifying the organisational scope. So in compensation programmes, people tend to focus on company-wide objectives and company-wide measures, but it may be for example, in a car company that elect electric vehicles are our big focus.

You might want to give the most prominence to the part of the company that's focused on electric vehicles, as opposed to do company-wide, at least initially. If this is strategically important for the company as a whole, it might gravitate to the company. There are other things where it's maybe better addressed in individual objectives. So again, the organisational scope really refers to ‘What's the level of measurement?’

3. The third is something we've discussed already, which is focusing on the duration. Is that something where we could make a difference in an annual basis? Is it something that we can address in three years? or something that's going to take multiple long-term cycles? So it's going to be five, six, seven years.

4. The fourth is consider the means and the ends. And just to take a simplistic example for diversity and inclusion that could be the result you're trying to achieve all throughout the organisation. But you can go about it the right way and you can go about it the wrong way. So going the wrong way would be: ‘well, we're just trying to become more diverse and more inclusive, but we started ignoring the fact that the people are qualified to perform the job.’ And so there are easier ways to get there, but in order to be successful as a business, we want to make sure a lot of other boxes are checked as well. Which means that we may have to spend a lot more time on developing certain people.

Step 4 is really to consider the means and the ends. So if you focus on diversity and inclusion it's not only important to become diverse and inclusive, but it's also important how you get there. So you can get to diversity and inclusion by not really considering the qualifications or the competencies of the individuals, but in the long run, that's going to be counterproductive. So the means, how you get diverse and inclusive, matters. And so you want to make sure that you really also make sure that you get qualified people as well as being diverse.

5. Step five is really the last one, which is really structuring the incentives. So it's really finding the right metrics and what kind of pay-outs should be associated with it. As I said before, at what level do you want to measure it? Is it a companywide? Is it at the business unit level or is it the individual level? So it's really designing the incentives to actually achieve the results and using the right kinds of measures that focus not only on the end you want to achieve but on the means for getting there.

So those are the five steps.

CC:

Very useful steps to guide our listeners. So really we can change the world as remuneration professionals, can’t we? So is it enough? We change incentives and basically we can achieve the sustainability agenda of firms. Is that right?

BJ

That'd be wonderful if all you had to do was wave the remuneration wand and it would be! But it's only one tool in the tool set. It has to start with management conviction around these things. And management's thinking about the tie to the mission and purpose, as we've talked about earlier in the conversation, communicating that down and making sure people understand what they do in their jobs to impact these measures.

Then the measuring them is just to reinforce and support and hopefully a cheerleader spurring them on along the way. It is a very important part of the conversation. And if you have the top executives talking about things and people see it in their pay, then, you've got a pretty strong alignment and a pretty strong lever to say, this is who we are as a company and these are the things we're really going to try to do to make a difference.

SB

We've been focusing on pay, but there are other tools in the toolkit. So for a lot of things, there's not a lot of real estate for pay because you have to focus on the financial stuff as well. And there are lots of things; there are 17 UN sustainable development goals.

Well, it's going to be hard to build a compensation programme that addresses all of them. But, tracking it and having leadership make it clear that these things are important and just being able to measure and report on them. For many of the others, particularly for the ones that are less material in terms of impact that, in many of those cases, just tracking them and reporting on them to the community may in fact be sufficient. We like to reserve the compensation programme for the most important, the ones that the company has the greatest impact on. Just to be clear, because it's not just about compensation as well.

CC:

It's not. In fact, I always say that this applies throughout the whole ‘employer value proposition’. It's what does it feel like for your firm? And if you concentrate on one SDG, then that impacts another SDG. So they’re all interwoven really, and it's very difficult to do one without impacting the other.

And in fact, I don't think that should be recommended necessarily. Although there is a balance you can't obviously aim to achieve all of the SDGs, because they're not all relevant to one’s business. So really interesting thoughts there. 

What turning to the future. So we are certainly seeing a growing demand for this concept of responsible reward. Is there anything else that's come upon on your agenda and your radar that you think is worth bringing to the attention of our listeners?

BJ

Well, the other thing that we've been thinking about in terms of responsible governance is the board's role in helping companies be more resilient today and making sure that the board is playing a role in the conversation about where the real risks lie. Nothing has brought that more to the fore than this whole bout that we've had across the world with Corona virus. That has affected communities, it's affected supply chains, it's affected people's ability to operate, and it really was not on people's radar the way it should be.

So we have an opportunity in light of any of these kinds of events which Seymour and I have written about and called them as ‘black elephants’ as a cross between black swans and the elephant in the room to say, boards really need to work with their leadership teams to help them be more resilient and more able to react to what is probably going to be an ongoing series of events like this that are going to challenge companies, that are going to challenge communities, that are going to challenge governments.

And it's important to get ahead of all that. 

CC: 

Anything else to the concept of resilience or agility for management? In fact, it's for the whole workforce as well, because management on their own can’t sway the company one way or the other. They need the impact of the people working below them. Anything else to add to that, Seymour?

SB

Agility is becoming more and more important nowadays with the constant change in technology. External events like Covid for one example or climate change is something that is causing us to constantly have to be flexible in terms of the way we approach things.

So, in the past you could set a strategy and stay the course, but now with things changing as they are, whether they're external or whether they're related to new competitors or technology or climate change etc., companies need to constantly adapt. And in order to do that effectively as people think about it, in order to be able to be very nimble, you need to have more distributed decision making. And in order to have distributed decision making, you need to have very clear and transparent communication from the top.

And you need to empower people, particularly at the front lines where they have the interface with the customer. So that's becoming increasingly important. And it has implications for compensation programmes. Historically comp programmes have been focused on achieving a particular strategy. With all this change, strategies may not last more than a year, in which case the model that I see evolving over time is focusing on things that are more mission or purpose focused, which is more enduring because that's what the business is about.

And it's not about a particular strategy because the strategy they need to keep changing. So the focus is more mission focus. It's more outcome focused than it's been in the past. You can still incorporate elements of your strategy and to create annual strategic milestones.

But the long-term incentives really have to be more focused on outcomes and results that are related to the mission and purpose of the organisation. It may also take us away from,  as opposed to the typical model where we have overlapping three-year performance periods, where they might go end to end. As comp professionals realise, the overlapping cycles give us an opportunity to change our objectives as things change.

Now if it's really more mission and purpose focused, we can focus more on results that are more enduring. And therefore we avoid the conflict as we go from one side to the other, having goals that really are not consistent from one period to the other. So I see some fundamental changes coming down the road in terms of the way we fundamentally think about compensation design.

CC: 

I can see some forthcoming articles from you Seymour that you'll be writing about and we'll be looking forward to reading. That sounds really exciting.

So people have been listening to us now for a little while. What would you like them to do having listened to us and what we have to say on this subject? The three of us are very passionate that it's the right way forward for our profession. You've written a number of articles, so maybe we can direct the listeners towards those. Anything else you think would be helpful?

 SB

In terms of a call to action, boards need to start thinking about this and having it incorporated in the board room discussions even more than they've done so now. Because the importance of these things is only going to continue to increase. The problems only continue to get more significant. It could have been more of a future thing. But now, the issue is, particularly with climate change. It's getting very clear in this country that our West coast is burning, our East coast is flooding. That has an impact, and it has an economic impact as well whether it's cost of insurance or having to shut down operations. It's really important that boards have lots of discussions, communications and get focused on these things. With younger generations in terms of customers and capital, it's increasingly going to be focused on these issues.

 So now is really the time to act. If you don't focus on it, you're just going to be left behind. We have been writing about this in a variety of venues, so we can certainly provide those things.

 CC:

Act now! is what I'm hearing. And that's what I've been saying in my various communications as well, because it is today's problem. Not some way off in the future. I completely understand what you're saying. So if people want to continue this conversation with you directly, how can they contact you? What would be the best way through your LinkedIn and website provides?

 BJ:

That would work great. We'll be publishing our different articles as they come out. In fact, we've got an article on agility coming out shortly.

 CC: 

Very good. So I'll be very pleased to share that on our newsletter as well.

 SB:

There's another article that we have coming out. It's a topic that's important globally: how corporations can make a difference with respect to issues like racism, which is one of the aspects of ESG or sustainability.  What we're saying there is diversity and inclusion is something that companies are just expected to do. But again, following up on themes that we've had during this conversation, some companies are uniquely positioned to make a difference. So there are a lot of underserved communities in terms of health care, in terms of nutrition, in terms of education that companies have the core competencies and it falls well within their mission to be able to address. Whether it's banks in terms of financing for affordable housing where companies can make a profound difference.

 So diversity and inclusion, I think we've got to the point where that's now an expectation. But to really make a difference, we need to get to the root causes of the problem. So again, I think it's very timely and, and it's important and companies are going to be held to account on those things.

 CC:

It’s all in support of the sustainable development goals #10 ‘Reduced inequalities’ that we've just talked about when we talk about inequalities in life and in the workplace. So that's the ultimate direction.

 I'd like to thank you both very much for your input and insights and sharing your experience, which I very much enjoyed listening to you. And I'm looking forward to reading more of your good work.

 BJ/SB

Thank you very much for having us. It was very enjoyable.