TM - March 2008 - (Page 36)

recruitment & retention assessment & evaluation compensation & benefits performance management learning & development succession planning 2. Shareholder concerns. HR professionals in public companies have a broader audience than those in private companies, as public company shareholders demand more attention than ever in the area of executive pay. However, that doesn’t mean private company practitioners don’t have plenty of stakeholders of their own to be concerned about. Stakeholders are not just those who own stock; they can be employees, customers or those in the local community. In public companies, shareholders have more information than ever before to help them understand groups or customers — may need to be addressed as well. If a company action resulted in a specific adverse outcome for any group, there should be pay-related implications. Addressing these issues doesn’t mean having all the answers. Rather, it means ensuring these items are part of the discussion, that any needed supporting information is identified and collected, and that the committee is being properly informed. The success of any short- or plan design lies in the measurement — period. 3. Understanding your executive talent. What your executives think, feel and expect matters. Who they are and how good they are also matters. Without the right executive team in place, strategy and tactics will only get you so far. long-term incentive It isn’t only HR’s job to understand what drives your executive team to perform — now it’s also the compensation committee’s. The problem is most committees do not interact regularly with the broader executive team and generally don’t have a read on what’s on the executives’ minds when it comes to the pay program. Here’s where HR can provide the committee with a very valuable perspective — the executive value proposition. We all know compensation and benefits — or extrinsic benefits — only make up two pieces of the executive value proposition. The other pieces are the intrinsic benefits, which include items such as the organization’s mission and/or vision, its culture and climate, its people, its brand, even belief and interest in its products. It’s all the rewards that help the executive understand why he or she wakes up in the morning. The compensation committee can’t get this information on its own. It takes someone who knows the organization, the business and the people to understand and articulate all the components of the value proposition for executives. What’s important for the committee to know is where pay ranks on a relative basis against the other components of the value proposition. Three Critical Areas of Compensation Committee Support the pay program. Under the Securities and Exchange Commission’s (SEC) new proxy disclosure rules, there is enhanced detail in the compensation tables and in the compensation discussion and analysis, a straightforward description of the components of and intent behind the program. As a result, there’s more focus everywhere on the what, why and how of executive compensation. It’s up to the HR professional to understand all this information and be able to address and support the committee in its understanding of several key issues: • Share availability and dilution. Public companies must receive approval from shareholders to set aside shares that can be granted as equity compensation. Once these shares are exhausted, the company will need to go back to shareholders to approve more shares. The more shares granted, the more diluted the value of each share can become. • Shareholder proposals. Unhappy shareholders often issue proposals that touch executive pay. “Say on pay” proposals, where shareholders would be given an advisory vote on executive compensation packages, are becoming much more popular. • Internal equity and fairness. Employees are spending more time thinking about how much more the boss makes than they do. Pay levels seen as excessive by the rank and file can lead to disillusionment and resentment, which can inhibit a team-oriented culture. • Pay for performance. All shareholders now expect the value created for executives to be similar to the value created for their shares — and rightly so. The acid test most will use will be to correlate the change in value of their shares with the amount of executive pay. • Community impact. Members of the local community — whether they be residents, interest March 2008 A good compensation program design will take a common sense approach to the three perspectives discussed here, and provide the committee with the support they need to make executive pay decisions. There are three tactical areas in which HR can have ground-level impact on the executive pay program. Target pay philosophy. Every compensation program needs to have a compensation philosophy that provides guidance on a variety of issues, including the company’s target pay positioning in the market. Increasingly, companies are developing compensation philosophies that target the 75th percentile of total pay. While there may be good reasons for a company to target an above-median pay posture, it’s not the right choice for everybody. 36 talent management magazine www.TalentMgt.com http://www.TalentMgt.com

Table of Contents Feed for the Digital Edition of TM - March 2008

TM - March 2008 Editor's Letter Contents Human Performance - The Paradoxically Gifted Leading Edge - Reverse Engineering: Shifting Focus to HR's Cause Learning Connection - Sharing Talent On the Hunt for Talent Unlock Employee Motivation Through Personality Testing HR Crucial to Executive Compensation Process Downtown Management: Surfing May Not Be Slacking Think Tanks Aid Government in Talent Management Creating Consistency: Enterprise-Wide Succession Plans Battle Retention Deficits With On-Boarding Sunbelt Rentals: A Mid-Level View of HR From the Trenches Butterball: No Chicken When It Comes to Talent Management Advertisers' Index Editorial Resources Full Potential - Choosing Change

TM - March 2008

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