Challenges Faced by Boards

Our clients, company directors, have the difficult task of balancing competing interests and expectations. The task has been made more difficult by the unprecedented attention that has focused on executive compensation in the aftermath of the financial crisis of 2008/09. In an increasingly demanding environment, the complex set of challenges faced by boards and their compensation committees include:

Attracting talent while responding to shareholder concerns

Boards need to attract and retain capable executives while at the same time responding to the increasing demands of shareholders for more transparent compensation, pay for performance, and compensation committee and consultant accountability. Balancing these competing priorities is what makes the compensation committee's job so demanding, and where Hugessen Consulting can assist.

Improving the link between pay and performance

Designing appropriate business performance measurement and assessment systems, and individual performance criteria for senior executives is perhaps the greatest unmet challenge in the management of executive compensation. The keys to effective and defensible compensation are the understanding of a company’s performance and value-creation strategy; the objective evaluation of business and financial performance, and the alignment of compensation with such performance. Hugessen Consulting provides committees with an independent source of support to devise appropriate incentive plans and to conduct balanced and fair performance assessments to align pay with performance.

Responding to escalating demands from shareholders, regulators, and the public to accept direct public accountability for executive pay and its performance rationale

Senior executive pay has increased dramatically over the past several decades. Investors, politicians and the general public have increasingly been questioning if this is truly justified by the competition for top talent, or whether it is an outcome of poor governance. Under unprecedented pressure, directors need information and ongoing support - in addition to appropriate program and process design - so that they can take ownership of, and explain, compensation decisions to investors and the general public.

Responding to the increased scrutiny of the compensation committee and their advisors

The concerns about corporate governance - the same concerns that resulted in the Sarbanes-Oxley legislation and more recently the government’s efforts to regulate pay following the financial meltdown - have also led to far more intense scrutiny of compensation committees and their advisors. There is growing recognition that boards should not rely predominantly on management, or on consultants retained by management, for the information and advice they need to evaluate performance and to make decisions on executive pay. Executive compensation advisors must help boards get the governance issues right - including ensuring the advisors themselves do not have, or appear to have, potential conflicts of interest.