Board Compensation Committees: Can Compensation Lead Culture? [Semler Brossy]

The role of the compensation committee has expanded far beyond setting CEO pay. In this episode, Doug Chia is joined by Blair Jones and Todd Sirras of Semler Brossy to explore how compensation committees are evolving to oversee workforce strategy, culture, talent development, and organizational readiness for the future. They discuss how regulatory changes, stakeholder capitalism, and emerging technologies, especially AI, have reshaped board-level oversight of people and pay.

The conversation examines why compensation can serve as a powerful signal of what a company values, how boards can align pay with culture and strategy, and what skills directors need to effectively govern in this expanded mandate. Blair and Todd also address the growing relevance of CHROs on boards, the importance of culture carriers, and how committees can stay informed without crossing into management’s role.

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Transcript

[00:00:00] Doug Chia: Welcome to the Public Company Series Podcast, powered by OnBoard: giving boards the clarity, security, and insights they need to make better decisions and deliver lasting value. I'm your host, Doug Chia. This podcast series is designed to give corporate directors, executives, and governance professionals the insights and tools they need to build boards that are agile, resilient, and prepared for the future.

[00:00:32] Doug Chia: It's based on the book Board Structure and Composition, which is part of the Public Company Series published by the New York Stock Exchange and JP Morgan. My guests for today's episode are Blair Jones and Todd Sirras, both managing directors at Semler Brossy. Blair and Todd authored the chapter of the book entitled The Expanding Compensation Committee Mandate.

[00:00:58] Doug Chia: Blair and Todd, [00:01:00] welcome to the show. 

[00:01:01] Blair Jones: Thanks so much, Doug. It's great to be with you. 

[00:01:03] Todd Sirras: Thank you. 

[00:01:04] Doug Chia: So I'll set the context for today's discussion and then we'll jump into it. The Compensation Committee has evolved from having its sole focus on how to compensate those in the C-suite to how the company manages its entire workforce.

[00:01:22] Doug Chia: So the underlying challenge that Blair and Todd address in their chapter of the book is the need for boards to expand the scope and practice of corporate governance beyond the executive ranks in response to rapidly developing technological, regulatory and societal shifts. In their chapter, Blair and Todd talk about how and why compensation committees mandates are evolving, why the shift is so important,

[00:01:53] Doug Chia: steps the board can take to make the most of their expanded role and a roadmap, [00:02:00] sample calendars and tips for building a robust, adaptable, data-driven, next generation compensation committee that can help talent forward organizations succeed for decades to come. And with that, let's take a dive into this.

[00:02:19] Doug Chia: The Compensation Committee was originally conceived as a committee to set and approve executive compensation and really spent the bulk of its time on the compensation of the CEO. But you explain in your chapter how it's evolved to looking at the comp benefits and workplace culture of the company's entire workforce.

[00:02:41] Doug Chia: So maybe just, uh, an overview, uh, from how we got from here to there. 

[00:02:47] Blair Jones: Yeah, absolutely. And it's been an interesting evolution. Um, probably the first foray for the comp committee beyond its traditional mandate was with succession planning. Committees and boards were getting criticized [00:03:00] for not having enough ready now

[00:03:01] Blair Jones: successors, and companies were being scrutinized and, uh, questioned about too many hires from the outside. So boards began to look at their processes for developing leaders. They began to look a little bit more deeply into the organization as to what their bench was. To think about the skills they would need for the future.

[00:03:24] Blair Jones: And in many cases, the Compensation Committee became a natural repository to take on that work, particularly below the CEO and maybe most senior C-suite levels. So that was step one. Then we ended up with a number of regulatory requirements related to pay equity, related to the CEO, uh, pay ratio, and also some disclosures overseas, related to the relationship between pay

[00:03:55] Blair Jones: for managers and, and leaders and, and pay for the rest of the [00:04:00] workforce, that really brought a different level of conversation about pay beyond the C-Suite and about the compensation philosophy more broadly. Um, so Compensation Committees got involved with how pay levels were determined, how we created Equitable Pay for Equitable Work, and, um, some of those types of issues.

[00:04:24] Blair Jones: Then you had further fuel to, uh, the discussion when the whole stakeholder capitalism came into the forefront and acknowledged that there were a multitude of issues that boards and, uh, committees should be looking at. Um, and that got them into looking at things like culture and looking at inclusion and looking at engagement scores.

[00:04:51] Blair Jones: Um, while some of the focus on sustainability has shifted a little bit, the importance of culture has [00:05:00] remained solid and a key focus of, of the committee and gotten them into issues such as leadership development, um, and also really looking closely at, uh, the types of skillset that are being hired and who's getting promoted within the organization.

[00:05:17] Blair Jones: Then most recently with the real exposure to AI that almost every company has, HR has again come into the forefront with compensation committees and HR leaders being tasked with looking at organization design differently in the age of a workforce that will include AI agents. How you re-skill workers to be able to thrive in this environment, etcetera.

[00:05:42] Blair Jones: So, um, the work that the committee has been taken on has been expanding and evolving, but has remained very, very important today, uh, for the committee to take that work on. 

[00:05:54] Todd Sirras: I would only add to that, that it's pretty logical in evolution and [00:06:00] from, uh, the perspective of governance and if you strip away all of the structure and say the objective,

[00:06:07] Todd Sirras: is to have the company's investment in its people, which is compensation, be optimized. Then the compensation committee is just the logical place to be thinking about all that stuff, because compensation represents a lot more than just dollars that go into someone's bank account. It's a very important focal point for explaining to people what's important, how they're valued, um, what the

[00:06:35] Todd Sirras: company values and where they see their mission and how that all works. So for the compensation committee to extend from what used to be, now this goes way, way back when Blair and I started in this business, there was a compensation committee, but they really were, it was like a scalpel. They did one thing. It was like a formality.

[00:06:57] Todd Sirras: To approve CEO comp. And [00:07:00] as governance has expanded its perspective and its view, when the compensation committees become more important, it's like you have all these talented directors focusing on this thing that, and many of them deal with in their day job all the time, and asking them as a compensation committee to take on a broader mandate on behalf of the company where they're a director,

[00:07:19] Todd Sirras: it just makes sense. Makes sense to do, and it's evolved that way to the benefit of the corporations. We think it's been extremely helpful for comp committees to be thinking more broadly than just saying, what's is that number okay? Check or not check. 

[00:07:36] Blair Jones: There's so much more context now, um, for them to make the decisions.

[00:07:39] Blair Jones: And I think that's been to the benefit. And you know, the other question that comes up to us a lot is, well, but the board is the recipient of a lot of this information. And that's true. There need to be reports on these types of topics to the board because the board, um, is having to manage all of it at a high level, but when you need to actually follow through with items [00:08:00] or to monitor that they're getting done, the committee can go a lot more deeply than the board can ever do.

[00:08:06] Blair Jones: The board can really only, at best take on the highest level of the issues and maybe get report outs, but the committee can actually dig in a little bit more deeply. 

[00:08:18] Doug Chia: What I remember is that the expansion of the executive compensation disclosure in the, in the proxy statement is really what drove a lot of this that I remember the first time the requirement for, uh, a CD&A came out Compliance Disclosure and Analysis and writing that for the first time.

[00:08:39] Doug Chia: And it was like, first of all, it was a real pain, but it involved a lot of different people. Um. And it required the, the comp committee because they had, they had to write a, uh, basically certify to it that, you know, made them pay a lot more attention, um, and really dig into the complexities. And some of [00:09:00] these comp programs are extremely complex.

[00:09:03] Doug Chia: So, you know, I thought that was kind of the beginning of, at least, you know, going from the CEO to the NEOs. And then eventually there was a lot of investor pressure. Uh, you know, there was one consortium in particular that wanted more human capital management, which it was almost like people didn't even think about that before.

[00:09:25] Doug Chia: So, but it's kind of like, I guess if we say that our employees are our most important assets, how come we don't talk about that in the disclosure? 

[00:09:36] Blair Jones: Right. 

[00:09:36] Doug Chia: Other than number, if this has have gotten 

[00:09:38] Blair Jones: more talent driven, you know, I mean, it's true. 

[00:09:40] Doug Chia: Yeah. I mean, the 10 K requirements were just, okay, what's, what's the approximate number

[00:09:45] Doug Chia: of employees that you have, and if you have unionized workers, is your relationship with them good? That was it. 

[00:09:54] Todd Sirras: That's right. 

[00:09:54] Doug Chia: When you think about it now, you're like, wow, that's really primitive in terms of what [00:10:00] disclosure is. 

[00:10:01] Blair Jones: I thought of the proxy a little bit as a one-stop shop that covers a lot of these issues and provides the context because it's supposed to provide a lot of the why and the rationale.

[00:10:10] Blair Jones: So that framing's important, you know? And then we see the expansion with the EU directive coming on that, you know, a lot of the issues we're gonna have to be thinking about were always global, but it's gonna be more visible globally, so that's gonna take on a new flavor as well. 

[00:10:26] Doug Chia: Yeah. Yeah, definitely.

[00:10:28] Doug Chia: Yeah. And we'll get to the global aspect later on. You know, you say in the book that the expanded scope of the comp committee requires a, an expanded skill set, um, on the board to actually carry that out. And so what kind of skill, expanded skillset should boards be looking for when, you know, if looking at board composition.

[00:10:54] Todd Sirras: Broad and diverse would be where I would start with that. As [00:11:00] Blair mentioned, as the context has expanded, the people that you need or collectively the skills that you need are ones that have a very broad set of experience, specifically with those topics because they can bring in their own expertise in that.

[00:11:20] Todd Sirras: So that's. We're talking about this as there's a numbers part to it. Okay? So you need finance background. There's a people part to it, CHROs, they have lived in the people world, uh, and do that. There are emerging technologies. There are all these things about how do you think about and measure performance.

[00:11:38] Todd Sirras: You need leadership that has experienced all that. And often if you, if I, if you think about it very generally, you would say, give me four or five really, really smart, thoughtful people who have done a lot of different things. That that's one way to do it. The other way to do is to round that out to say, give me all those really smart [00:12:00] people, but give me the pros in some of the things that we need to be thinking about that touch our entire charter, about paying people for good performance, whatever we call that in a fair and balanced way,

[00:12:15] Todd Sirras: however we figure that out. You need people that have done this before, so you need a broad set of expertise. Um, that's wrapped up in a group of people who really have the capacity to think about the bigger business topics that, that you're dealing with. 

[00:12:29] Blair Jones: And what I would add to that is those skill sets also in different contexts that are very talent dependent.

[00:12:35] Blair Jones: So those people who have had to drive change, those who have had to deal with disintermediation of their industries and tried to think about the talent issues relative to that, those who have dealt with really significant labor issues. Um, those with global workforces. Um, all of those things, having managed those issues, whether you've been a CHRO in that situation or someone who's led a [00:13:00] large group of people, you know, just the understanding that's required of how you think about skills and measurement and what success looks like in those um, situations, is critical.

[00:13:13] Doug Chia: And so you said that a lot of boards are recognizing the value of someone like a CHRO or a CHRO who's dealt with these because you know what we've talked, talked about in terms of the expansion of comp committee. It's, you really could call it the HR committee, because the head of HR and their direct reports are the ones reporting most, most of this stuff and, and working with the comp committee on all on all of these issues. So,

[00:13:44] Doug Chia: like the audit committee get a former CFO or accountant is, makes a lot of sense. But I guess, you know, the criticism here is that these people are just HR specialists [00:14:00] and you know, we need board members that can understand the entire picture. That's why we like CEOs. And so CHRO is kind of narrow. Um, and maybe even, I guess HR is always, always looked, uh, you know, kind of, people have kind of looked at disparagingly at HR.

[00:14:24] Todd Sirras: Yeah. 

[00:14:24] Doug Chia: And so maybe that has something to do with it, but yeah, you know, talk about this, overcoming this perception that CHROs are somehow just not equipped to be board members. 

[00:14:36] Blair Jones: I mean, well, CHROs, at the end of the day, their job is to implement strategy. So understanding the big picture becomes central to that.

[00:14:44] Blair Jones: And I would say, you know, today, even more so, if you think about what we went through with COVID, what we went through with the great resignation, and now what we're going through with AI and re-engineering organizations to deal with AI, all of those are people issues that [00:15:00] you've got to have some people talent to know how to do.

[00:15:04] Blair Jones: And you know, just like not every CFO would be equipped to be on a board. There may be CHROs who aren't, but there are many who are, who are in the front lines, and particularly over the last multiple years, um, you know, since COVID have had to deal with a whole host of HR issues that are new to all boards, um, and, um, in many cases, um, some board members have never dealt with them before and they've been on the, you know, these CHROs have been on the front line, so they can be very, very valuable additions in that respect.

[00:15:39] Todd Sirras: Yeah, it's not every CHRO, just like Blair said, it's not every CFO who can be a great audit committee chair, but the ones that have been able to spend time in their career. So many in many places, look, in a lot of larger companies, you go through the rotation and HR is one of the places where you rotate through, and not every organization does that.

[00:15:59] Todd Sirras: And Doug I [00:16:00] completely agree with you that HR has like a history problem. It used to be called personnel and it's like you went there to make sure that your time card was working right. 

[00:16:08] Doug Chia: Yeah. 

[00:16:09] Todd Sirras: And 

[00:16:10] Doug Chia: that was that article, right? 

[00:16:11] Todd Sirras: Yeah. 

[00:16:12] Doug Chia: Um, why everybody hates HR? That I know got a lot of discussion in the HR community. 

[00:16:18] Todd Sirras: For sure.

[00:16:19] Todd Sirras: Yeah. 

[00:16:20] Doug Chia: And you know, recognize some of this is actually rightfully so. 

[00:16:24] Todd Sirras: And it used to be, it used to, I mean, I'm sure this still exists, some places where the old story, this is way, way back, was if you couldn't cut it in the op as an operator, you went into things like HR. 

[00:16:37] Doug Chia: Yes, exactly. 

[00:16:39] Todd Sirras: That's the stigma. And we hear it every day.

[00:16:42] Todd Sirras: We hear it from someone that says, I never knew how valuable a good HR person could be, or I, I want, uh, you know, to find someone for this role that can be a strategic partner. And just [00:17:00] like the roles, this folks are out there and they make fantastic candidates because they get over time, in that role, you get so steeped in how to manage the people and it's not just, you know, it's not just what you see on the piece of paper and when, when you have folks that can really think through that and what that means and all the nuance that goes along with managing people, which is extremely complicated and messy,

[00:17:20] Todd Sirras: that person's really, really valuable. 

[00:17:23] Blair Jones: Right. And there probably is some lesson here for companies, um, to think about, um, from two respects. I mean, one, if you get one of these, um, wonderfully skilled HR leaders on your board, can they help raise up the caliber of your HR organization, you know, by what they've learned?

[00:17:42] Blair Jones: And I've seen that happen in a couple of my boards where that individual has become a mentor. But two is, you know, some organizations are, um, bolstering HR skill sets by having the development of those individuals start in finance, [00:18:00] take a rotation through finance, or perhaps go out to an operator role and vice versa.

[00:18:05] Blair Jones: And those, um, those are the people who are bringing great insights to the committee. Um, if you can't have an HR person, I would say a business unit head who has had to manage a very complex workforce can bring a lot of that as well. 

[00:18:19] Doug Chia: I'm always fascinated by generational change within organizations, and I think HR is kind of closest to, closest to that, and can

[00:18:29] Doug Chia: really understand the issues there, instead of saying, well, I had to do it this way, just force them to do it this way. And I always tell people, no, the we don't change the next generation. They're gonna change us. It, it's really just, you're fighting a losing battle. And so HR is the one that, that deals with these, these generational shifts.

[00:18:50] Doug Chia: And now, like you said, shift to a generation that's gonna need to use AI. I, I think it makes a lot of sense and we'll [00:19:00] start to see more of it.

[00:19:01] Doug Chia: One phrase in the chapter that you use is, compensation can lead culture and those moving into the culture discussion. So compensation can lead culture. What does that mean?

[00:19:14] Todd Sirras: The way that you pay people says a lot about the type of company that you are. What you value and what, what's important. It's what you're willing to pay for. So in that regard, it can be a leader in culture because it's a signal about what gets valued, what gets you ahead in our company? How do we, you know, uh, if you think about compensation as a marker for people who are performing well, get paid more.

[00:19:41] Todd Sirras: The things, and it's really incentive compensation on one hand, like performance measures. If you do this, you'll get this comp and that's good. And, but another way is to say just the absolute amount. We pay a lot. We pay in the middle. We pay not so much because we have something like a mission that [00:20:00] is more important and comp isn't as important.

[00:20:02] Todd Sirras: It's so much about the type of company that you are. It's why it's the most important thing to get right at, you know, kind of as you go along. And it's also, um. The thing that you have to be very, very careful about changing because it means so many different things to every single person that touches the company.

[00:20:21] Blair Jones: Yeah. I think, um, to get one more level granular from what you're saying, um, you can structure your compensation program, um, to send a lot of, um, messages about how you want people to work together or work independently. So, um, looking at two different, uh, consumer facing organizations. One, uh, the CEO really believes one team, one dream.

[00:20:44] Blair Jones: So they have the same measures up and down the organization where they win and die together, and that's really important. So they've sent a strong message about teamwork. Um, and that you need to figure out how you link into these global [00:21:00] goals and make sure that we're achieving them together. Whereas another CEO came in at a time where an organization needed a turnaround and he felt like there wasn't enough accountability out in the organization, so he wanted measurement

[00:21:15] Blair Jones: that was very directive. You know, out to the country and business unit level. And, um, by measuring things that discreetly then he sends a message about, I need you to be accountable to deliver your numbers. And that will roll up to the whole, and both of those can be right. It's about CEO management style and what the company needs at a given point in time.

[00:21:37] Blair Jones: So there's an ability through the compensation program to send those messages. And then the other level of granularity is just a message of balance. Um, whether you're focusing on financials only or whether you put in some other measures that are more strategic in focus, um, that might say, yes, we need to achieve these numbers now, but we always need to be focusing on [00:22:00] those things that are gonna lead to the long term.

[00:22:01] Blair Jones: So you see that a lot, for instance, in the pharma industry where they're looking, you know, at innovation oriented types of investments and investments that they're making in adding to the organization through M&A, etcetera. And so you see those kinds of measures, um, balancing out the financials.

[00:22:20] Doug Chia: It sounds like you cannot pay people to like just have a culture.

[00:22:26] Doug Chia: You can't, people pay people to do culture, but the way your program works can says a lot about the company and can really make shifts, uh, in terms of culture. I mean, you know, looking at law firms, there's always this kind of, well, are they, uh, you know, do they pay in lockstep or they eat what you kill?

[00:22:47] Doug Chia: And, uh, you know, it says a lot about the culture of, of a firm and where you would wanna go. 

[00:22:53] Todd Sirras: Yeah. 

[00:22:53] Blair Jones: Right. And both can be successful. So it's not a right or wrong, it's a what's right for the time and for [00:23:00] the leader and leadership you have. 

[00:23:01] Doug Chia: And and what's right for the employees who choose to go there. 

[00:23:04] Blair Jones: Yeah, that's right.

[00:23:05] Blair Jones: That's right. 

[00:23:06] Doug Chia: Another thing you talk about in the chapter is you know this concept of culture carriers and you say it is important to find ways to reward the culture carriers that bring a positive ethos to life. So maybe explain what a culture carrier is, 'cause actually I, I'd never heard this term before.

[00:23:28] Blair Jones: Yeah. Well, a culture carrier is someone within the organization who becomes the model of the organization's values of what's important in the organization. They're mentoring people. They're building inclusive environments. They stand out as someone who is really, um, you know, a piper that people want to follow.

[00:23:50] Blair Jones: And, um, while you'd like everybody who's in a leadership position to have those skill sets and to be a culture carrier, like everything, there are those who are better [00:24:00] at it than others. So an organization can do a lot to bolster its culture by making sure that those people are prominent in the organization, whether it's through promotions or putting them in leadership roles, in um, cross organization initiatives, etcetera.

[00:24:17] Blair Jones: So those are important messaging mechanisms and they tie back to comp because when you give people bigger roles, usually compensation follows. 

[00:24:25] Doug Chia: So I guess, you know, here we're talking more about talent development and promotion as opposed to just straight comp. 'cause yeah, I'm thinking, you know, again, you can't pay someone to do culture and you can't say, okay, we're paying this person more

[00:24:41] Doug Chia: 'cause they have, you know, we think this the model employee, but yeah, you can, you, you can develop that person and promote them to higher positions, which does lead to higher pay. So I guess there is part of the incentive.

[00:24:57] Doug Chia: Another big point you talk about is [00:25:00] that the compensation committee should understand how the goals cascade through the entire organization, how progress is measured and how success is communicated internally.

[00:25:14] Doug Chia: This seems pretty granular for a comp committee to get into. You know, we always talk about noses in fingers out. This seems like, uh, almost getting a little bit fingers in, so, you know, maybe talk about, you know, how a comp committee keeps tabs on this without really going so deep that it feels like they're asking kind of micromanaging-type questions.

[00:25:40] Todd Sirras: It's a great question. Remember, this compensation committee is meeting four or five times a year, has, you know, a probably a single digit number of hours that they're spending together talking about these topics. There's just no time to do that. Not to mention it's not really their job, [00:26:00] but if you think about that whole notion of understanding how it cascades through the organization as an input to the decisions that they're making about how

[00:26:10] Todd Sirras: to structure compensation for the executive team,

[00:26:14] Todd Sirras: then you see, hey, there's a lot of value in that. So their, their objective is not to change or dictate or make you align with what they're doing. It's the other way around. It's like, tell us what you're doing with the company as part of the ongoing conversation we have.

[00:26:29] Todd Sirras: That will factor into how we think about what the right performance metrics are for the business on the executive team. And those things should be, in most cases, fairly well aligned. And people have different responsibilities and different ability to influence certain things, and that shows up. But it's difficult to have one, two things that are sort of at odds at each other and have that work really well. And

[00:26:51] Todd Sirras: how, how many of our clients, the ones that do this the most successfully, how do they do it, is they have a lot of open conversation, formal and [00:27:00] informal, with members of the management team, not just the CEO. But they also have dedicated time on the agenda to hear from individuals on the team about what is going on in the organization down through. How's comp looking?

[00:27:13] Todd Sirras: How's the broad based incentive pool going? What are those measures doing? How are we thinking about them? So just having that highest level understanding helps them execute what's in their charter. Those responsibilities are in their charter about establishing the programs for a very small group of people.

[00:27:28] Blair Jones: I have a client that is in the healthcare space and quality is extremely important. And um, at one point, quality was actually not measured at the senior level. And there was a lot of discussion among the committee, well, how do we know that our mandate to deliver quality services is actually felt throughout the organization?

[00:27:49] Blair Jones: So we talked a lot about how the different units measured quality and were rewarded on quality. Ultimately, they did add something at the corporate level as well, but it was very important to [00:28:00] know how that was cascaded out to make sure that a, a very important business mandate was actually getting the proper attention.

[00:28:08] Blair Jones: Um, another conversation you might hear in committees is about cash. Um, so cashflow is a measure in a number of corporate incentive plans, and, um, committees will worry do people really understand what they do or what they need to do, um, to drive that measure? So, um usually the HR team will then take the time to say, well, here's how we have cascaded that throughout the organization, and here are the trainings that we're doing within the organization,

[00:28:36] Blair Jones: so people understand what they can do and what levers they have to move this measure. Here are the measures that we're sharing back in the organization for that, and that's been very helpful for organizations. And then, a third example of where committees might get involved is I have a client who has just acquired two companies that are, um, adjacent to the business, but you know, really will operate somewhat [00:29:00] autonomously from the core business.

[00:29:02] Blair Jones: And so it's been important for the committee to understand, you know, we acquired these two adjacent businesses for a reason, but how are they gonna be measured, you know, such that it adds up to what we're trying to do corporately. And so we've spent a lot of time talking about, you know, while those executives don't actually fall in the committee, mandate how they're gonna be measured to make sure that the M&A

[00:29:25] Blair Jones: purpose is actually achieved. So those are ways that the committee gets involved that are pretty important to making sure that the business is successful. 

[00:29:34] Todd Sirras: One addition to that, from the committee's perspective, being able to see all of that alignment doesn't mean that everyone gets comp for doing the same thing.

[00:29:44] Todd Sirras: Having the perspective across all the lines of business, the programs, the strategy on everything allows you to appreciate and understand where you want to create tension. It's something that incentive compensation programs can do very, very well, and it creates management challenges, [00:30:00] um, not in a bad way.

[00:30:02] Todd Sirras: And is that to create competing incentives, create a, a tension that can be very healthy if it's managed well. So for example, Doug, if I said we're selling widgets. And I said, Doug, your job is to sell all the widgets you can. And then I went to Blair and said, Blair, your job is to make sure that we don't get sued for selling widgets, though in a way that we're not supposed to be.

[00:30:23] Todd Sirras: You have competing incentives, but they might be aligned with our strategy, which is that we are, we are responsiblewidgets.com and we sell our widgets responsibly. And you might have two different metrics and different incentive programs, but together they can work. And that's a benefit, that that's a perspective that the board and the senior leadership team can have and think about.

[00:30:45] Todd Sirras: And it's like kind of the other side of compensation alignment where it doesn't have to be completely harmonious, but you should know where people will have competing objectives and how you help them manage through all that. 

[00:30:57] Doug Chia: That's a great point. I mean, having [00:31:00] experienced this myself in terms of being the lawyer who's trying to protect the company, protect downside risk, and then you have people yelling at you saying

[00:31:11] Doug Chia: look, we're trying to get things done here. We're looking, you know, we're trying to sell stuff, make a profit. You're like getting in the way with your kind of niceties and it's like, I'm, I'm just like trying to make sure we do this the right way. Um, and I guess that's, you know, that's healthy tension so long as you keep it civil.

[00:31:30] Doug Chia: But yeah, everyone's trying to do their job. 

[00:31:33] Todd Sirras: That's right. 

[00:31:33] Doug Chia: I think another point you make is about the, the internal communication. Sometimes I remind people that, Hey, look, you're writing the proxy statement, there are a lot of different audiences out there. It's not just the investors and ISS and stuff. The internal, you know, employees read the proxy statement, particularly certain pages of the proxy statement and y you know, they react to this stuff.

[00:31:59] Doug Chia: And, [00:32:00] um. You'd be surprised about how many employees, you know, kind of cite what was said in the proxy statement and then try to, you know, whatever, do whatever with that language. So it's always something that people need to keep in mind. 

[00:32:17] Blair Jones: You know, as labor becomes more central and, and labor issues become more elevated for a number of companies, um, that language and the proxy is often, um, something that is taken and many times taken out of context, uh, for some of the battles that happen between companies and, and their labor forces, particularly if there's a strike.

[00:32:40] Blair Jones: So I do think what you're saying is the Compensation Committee becomes an important point there to, to understand two things. One, to understand the relationship with labor and the things that are being done to create great working conditions. 'cause that's what everybody wants for the company and, and a good labor management relationship.[00:33:00] 

[00:33:00] Blair Jones: Um, as well as think about when you do write these things, how will that support the messaging you're trying to give to foster that relationship or work against it, and where might the vulnerabilities be? 

[00:33:12] Doug Chia: That's another great point in terms of another audience that is going to read the proxy statement and perhaps use it as ammunition if you write things in, you know, a not well thought out way.

[00:33:25] Doug Chia: I mean, I think that to me, the good compensation committees ask those kind of questions in terms of how different stakeholders are gonna react. The bad ones, they just come in and say, well, how, what is ISS gonna think about this? And, any time I hear that as the first question, I'm just like, oh my God, no!

[00:33:42] Todd Sirras: Yeah. 

[00:33:44] Doug Chia: So 

[00:33:44] Todd Sirras: there's a little work to do at that point. 

[00:33:46] Doug Chia: Yeah.

[00:33:47] Doug Chia: Let's move to the global aspect of this. So, you know, you say that, uh uh a board should work with HR to develop a deeper understanding of global [00:34:00] compensation philosophy and for larger multinational organizations, compare pay across regions and note where there are

[00:34:11] Doug Chia: where they are customized to local regulatory standards and expectations. That seems like a gargantuan task given the multiple countries, each one has its different ways of compensating people, what people think of as compensation, the regulations and stuff like that. How are they supposed to do this?

[00:34:35] Blair Jones: Yeah. And, and there are a number of different things that a committee can do. 'cause you're right, they, again, in the spirit of, you know, noses in and fingers out, it's how much level of monitoring do you need? But they do have to do some basic things. First of all, equity is given throughout the world, and so making sure that you're compliant with the different regulatory requirements for equity or if equity can't be [00:35:00] given,

[00:35:00] Blair Jones: how you're addressing that is a basic thing because they have to approve the equity grants that go out to the whole organization. So at a basic level, they need to do that. Increasingly there is reporting across the world about compensation. And this EU directive, uh, will expand that and will make it even more complicated because, um, while it's, um, you know, got the same spirit, it will be implemented differently in different countries.

[00:35:25] Blair Jones: And so understanding that what might be said about compensation and reported about compensation, uh, becomes important. And then finally, just pay equity. Um, when you're looking at pay equity, that started as a US exercise, but it has been expanded by most of these multinationals that you're referring to as a

[00:35:44] Blair Jones: global exercise. So being able to understand pay equity types of issues throughout the world because of, you know, the reporting that's required, are requirements that the committee needs to go through and needs to have assurance that management's taking the [00:36:00] steps to fulfill the regulatory requirements.

[00:36:02] Blair Jones: Clearly they can't go and calculate all of these things themselves and check that, um, all of the data reported to them. They're gonna have to choose to use the resources within the company, but they can ask the right questions to make sure they're getting the data to get the assurances that it is indeed being done and done thoughtfully.

[00:36:20] Doug Chia: Another point you make in the book is that, um, the comp committee, uh, needs to understand how its responsibilities intersect with other committees and the board as a whole, of course. And in particular, you talk about the nominating governance committee. How are they involved? I mean, I would think that the audit committee, you're, it's, it's more of a natural fit, so,

[00:36:48] Doug Chia: talk about nom and gov and how, how the comp committee, uh, has intersectioned, uh, with what they do. 

[00:36:55] Todd Sirras: It's an interesting question. At the moment, we have many clients that have, [00:37:00] at least one session, a joint session of both committees. Because the implications for talent planning are so entwined in the comp stuff that those two things just, you almost can't have one discussion without the other.

[00:37:13] Todd Sirras: So those two committees are extremely close, very close. Um, all of our compensation committees have periods of their agendas where they're talking about succession planning. And that is as look, it can be as detailed as two levels deep in the organization. A big chart of all the people and who's ready now and who you know, who should you have your eye on.

[00:37:38] Todd Sirras: It is almost like both committees have responsibility for that. On the talent side, there's elements of the nominating governance committee that are less comp related, but where there's that intersection is in talent, talent planning and management. And uh, yeah, they're, they well-functioning committees as the comp committee mandate sort of expanded and the things we're talking about and the expertise and all that that goes [00:38:00] across the entire board, the types of people that you need on your board

[00:38:02] Todd Sirras: it's not just a comp committee matter, but how those two committees work together is extremely important. 

[00:38:09] Blair Jones: And then on director compensation, nom and gov would have the director nominations and compensation will also often have the compensation element of that. It started in nom and gov, but increasingly has moved over.

[00:38:21] Blair Jones: So, you know, I think it's just important, it doesn't really matter exactly who has ownership of these items, it's that the commit that the board has a discussion about what are the things we should be talking about and do we have it covered in the right places, in the right ways, covered with the right frequency. And then, you know, then you can drive the necessary coordination, whether it's committee to committee or committee to board.

[00:38:47] Doug Chia: Let's move to, you know, your, your practice philosophy for a comp committee. I like how you have this phrase. Crawl, walk, run. And that's a [00:39:00] method of expanding a comp committee's traditional scope to, to cover human capital management. So maybe talk us through this crawl, walk, run concept. 

[00:39:11] Todd Sirras: Yeah, that's nietzche, right?

[00:39:13] Todd Sirras: So like if you're gonna fly first, you have to stand and walk. 

[00:39:18] Blair Jones: For committees that are new, they just need to get familiar. Um, so it gets to Todd's point about, you know, you should stand first. So what are the topics? What are the key issues in those topics? And bringing in the experts, you know, whether it's benefits experts, whether it's some people in your talent organization to talk about leadership development and skill planning, etcetera.

[00:39:42] Blair Jones: Um, bringing in people to talk about engagement scores, bringing in people to talk about performance management, just to get the lay of the land. Like what's being done, what are we measuring, what are the key questions that we're trying to talk about? Um, the other key point at this walk stage is taking your [00:40:00] business strategy and saying, what are the key human capital topics that come out of it?

[00:40:05] Blair Jones: Um, so once you know you've done the crawling and gotten familiar with it, then you can actually walk. And the walking is more about getting report outs on certain areas where you, you as a committee can actually be helpful. So that's where you take the strategy and you say, out of the strategy, what are gonna be the most important things for this year or for the next three years that need to get done on the human capital point?

[00:40:29] Blair Jones: And what are the questions that, or, or data that should be reported back to us about that? Um, and that would be the walk part, so that you're really focusing the effort a little bit more rather than just getting a smattering of report outs. And then the run is actually where you're, um. Becoming more integrally involved in terms of how is it really working in the organization.

[00:40:53] Blair Jones: So that might take the shape of having business unit heads come in and talk to you about how they do their [00:41:00] talent planning and how they see the talent in their organization, how they're building the cultures for their organization. So you're actually hearing the implementation versus just seeing a flat report on numbers and, and data.

[00:41:13] Blair Jones: Um, you also, um could have people who have been highlighted as future successors that have been going through leadership development type of training. So one of my clients has been doing an extensive set of work around future leaders and they have those people come and talk to the committee about what they've been learning and what they, um, are getting out of those experiences.

[00:41:40] Blair Jones: And that serves a couple of purposes. It gets the committee and board members familiar with those people, but it also, again, brings more texture to what's actually being done. So you can think about, are we doing the right things to support our strategy? A third thing that can be done is just to do a retrospective of the [00:42:00] year with the CHRO.

[00:42:01] Blair Jones: Talking back about, okay, what did we learn about human capital this last year that we wanna think about going forward? Where again, the committee's becoming much more of a thought partner in that. I know you have a question about what Delta Airlines does, which I think is another extension of that, of, you know, the retrospective and really getting close to how are things working in the organization.

[00:42:21] Todd Sirras: But also, like I said, all in service of the job, the comp committee's job and we, we talk about a lot of broad things, have very high level strategic stuff, lots of different stuff.

[00:42:33] Todd Sirras: You can look online for any public company and see what the compensation committee is responsible for. So, whether you're crawling, you're walking, or you're flying, you should all be tied back to this is helping us execute these things, which is why you don't have to start, you don't have to fly to execute on your charter, but if you try, you can say, look, we're flying.

[00:42:56] Todd Sirras: They say, that's fine, but we're a bicycle company. Like [00:43:00] flying, not necessary. So the, you know, it's like being pragmatic for the committee about getting all these very big, interesting, fascinating stuff that is all at the heart of organizational success and optimization. Still gotta do the job, still gotta play the hits.

[00:43:18] Todd Sirras: So it's just always a good reminder to say like, well, let's not spin off in this. And this stuff repeats in like regular life all the time, right? So Blair and I have these conversations every day as it relates to our own business. Let's get back to the thing that we're supposed to be doing. 

[00:43:32] Blair Jones: Right. And I think that's where when you get to the run part, you're really becoming a well oiled machine where you're trying to make sure you have the right priorities, but you're also getting the texture to make sure that what you're prioritizing is working.

[00:43:45] Blair Jones: In a real way for real people.

[00:43:47] Doug Chia: You know, getting to the data point, you know, management tends to feed the comp committee and the board with a lot of aggregated data about employee sentiment surveys and you know, [00:44:00] this, that and the other thing. And to me, you know, aggregated data can hide a lot of stuff or just not be very useful and get at like really pinpoint where the issues are.

[00:44:13] Doug Chia: How do you advise boards in terms of how do you ask for the que, how do you ask the question in terms of, don't gimme aggregated data or, you know, in terms of what, what they should be really digging for. 

[00:44:28] Blair Jones: Yeah. Well, I mean, this is where you, again, you start with the strategy. So if you go back to, you know, the healthcare client that I was talking about earlier.

[00:44:35] Blair Jones: Where, um, we were talking about quality. I mean, another thing that they've done from the data front is nursing is critically important to them. And so instead of providing aggregated data, they're actually really digging into what's happening with the nursing population and cutting it a lot of different ways, both in terms of the attraction and retention side of things, but also in terms of the [00:45:00] engagement piece of things.

[00:45:01] Blair Jones: And they can, you know, look at that, cut a number of different ways, but they're focusing on a critical population for them that drives much of the success of their organization. So that's a really good example of using data, right, and, and not hiding, um, underneath it. Then they're also then able to highlight what they're doing to improve those scores and the tactics they're undertaking, um, whether it's

[00:45:29] Blair Jones: how they recruit, how they develop, um, you know, and then how they promote people through the organization. So it's, um, I think that's, that's one example where it's been done really well. I mean, we've also talked about labor. Um, I have a client who's in the distribution business and labor's really important to the way they function.

[00:45:49] Blair Jones: So, um, you know, if you just provided aggregate engagement data about how things were happening in that organization, you might miss how things are working [00:46:00] at the distribution center level and site level. And while that feels very granular for a committee, if that's sort of the engine of what makes your organization work, understanding the dynamics there can be really, really important.

[00:46:14] Blair Jones: Um, you know, if you get outside of, uh, those two sectors with tech, look at AI talent and really getting data, you know, you could be having great retention of tech talent generally, but if it's not the right tech talent that you need, then you aren't getting the right data. So, um, really thinking about, again, what's differentiating for the organization.

[00:46:37] Doug Chia: So let's get to the Delta Airlines point. Um, you know, in the book, I, I found this fascinating that you say that some boards get feedback directly from management by inviting them into the boardroom and, you know, even below that management level, Delta Airlines has an employee committee that [00:47:00] relays employee concerns, perspectives, and suggestions directly

[00:47:04] Doug Chia: to their executives and the board. You know, I've done some work on, you know, worker voice and whether worker voice really gets to the board and this seems like, you know, a great what, what Delta is doing, it really seems like they, they care about this. I'm not sure many companies and boards do this and part of the reason I think is because the senior managers are a little bit scared about what those

[00:47:31] Doug Chia: committees might say, and so do you see this as some kind of a trend? 

[00:47:38] Blair Jones: It's not a trend yet. It feels like it's a really promising idea. And I mean, I think when you get back to, um, you know, maybe it's not directly how does compensation affect culture, but how does the Compensation Committee affect culture?

[00:47:53] Blair Jones: Um, you see it, you know, in Delta's employees and how they um, interact that there are [00:48:00] many things that are reinforcing about the importance of the employee population, uh, with how they run the organization, and that happens to be one of them. So it does feel very promising, um, as something for companies that are very talent driven and that have talent dealing directly with the consumers day in and day out to consider.

[00:48:22] Blair Jones: Other ways that that companies are trying to get more exposure is they will invite, uh, board members, um, not necessarily just compensation committee members to town halls or to small group meetings where management is not there, just to interact with them, to get a better feel. And it feels to us that that's a really critical way to understand what's happening

[00:48:45] Blair Jones: culturally in the organization, in practice because you can, to your point, look at all sorts of aggregated data that says things are great, but the rubber hits the road with how the employees are receiving it and what they do with it. So if you can get some real life [00:49:00] experience, and I applaud the senior leaders who are not daunted by that and are willing to let their board have that exposure because it can be very valuable being when it's brought back to the board or to the committee room.

[00:49:14] Doug Chia: Delta Airlines is a, is a really interesting example. And I guess part of it is that I would imagine that part of it is that their executives are getting exposure to a lot of different employees anyway by flying on Delta. Um. And so it would make sense. Okay, let's, you know, instead of just having all this anecdotal evidence of, I talked to one of the pilots, or a stewardess or something, it's like, let's make this a little bit more formal.

[00:49:43] Doug Chia: I know some companies, their employees don't interact directly with the customer that the company basically tells the board, you wanna visit any facility at any time? You are free to go in and, and walk around and talk to [00:50:00] people. Um, you know, I know that's another way of doing it, even though that's also kind of controversial within the management community.

[00:50:10] Doug Chia: So folks like Elizabeth Warren and others, you know, Bernie Sanders have said well let's put employees on the board and in the comp committee, and that definitely has not taken off. But, you know, absent that, you know, you mentioned lunches and town halls and stuff, other, other ways that the comp committee can get feedback from kind of mid and lower level management and really be taken seriously?

[00:50:41] Doug Chia: You know, what, what have you seen there? 

[00:50:43] Blair Jones: I have another client who does board dinners where they, um, purposely skip two or three levels down in the organization and invite promising individuals to come to the board dinners, and usually the, you know where they're seated? They're seated [00:51:00] with a board member who

[00:51:01] Blair Jones: has come from their area of expertise or comes from an industry where they would understand it, but that creates good conversation over dinner. Um, and it's a recognition event for those individuals, and that's worked quite well. Um, again, having some of these people come into the boardroom to talk about their experiences.

[00:51:20] Blair Jones: When you get to the run aspect of the crawl, walk run, has been very valuable because you get, um, people who care about the company and the company has invested in them, but, you know, hopefully are gonna provide some pretty candid, um, insight at the end of the day. Um, there is opportunity, I think, with these employee resource groups who have been chartered to help the organization with, um, becoming better businesses based on, you know, their areas of expertise and characteristics.

[00:51:51] Blair Jones: And I think those are good resources for the committee. And putting those people in front of the committee or actually having the committee visit them can be helpful. All of [00:52:00] those are good exposure. 

[00:52:01] Doug Chia: I guess this is an area where companies in Europe are more forward thinking about this. People point to Germany as the actual structure governance structure builds this in.

[00:52:12] Doug Chia: Whether that's a good or a bad thing, you know, is a, is a different discussion. But yeah, it seems like there are ways, if the comp committee really wants to find out that they can take proactive steps. Instead of just kind of sitting back and waiting for management to feed them things, which it probably gonna be on the positive side.

[00:52:34] Doug Chia: So probably this is a, a good place to, to wrap up. So Blair and Todd, thanks so much for joining me today. Always a pleasure. And that concludes this episode of The Public Company Series Podcast, powered by OnBoard. I'd like to thank Blair Jones and Todd Sirras again of Semler Brossy for sharing their insights on [00:53:00] board compensation committees.

[00:53:01] Doug Chia: I encourage you to read their chapter of the book entitled The Expanding Compensation Committee Mandate, which you can find in the book board structure and composition part of the Public Company Series published by the New York Stock Exchange and JP Morgan. You can read and download the entire book at www.nyse.com/pcs.

[00:53:25] Doug Chia: To learn more about OnBoard, visit www.onboardmeetings.com. For additional resources and episodes, visit www.publiccompanyseries.com. And don't forget to subscribe to receive all new episodes of the Public Company Series Podcast and please rate us and leave a review. I'm Doug Chia, and we'll see you next time.