Compensation Committee Onboarding: Guidance from a Veteran Chair

Inside Americas Boardrooms
Onboarding is a critical process for getting new directors up to speed and contributing quickly-and it's especially important at the committee level. This two-part episode series focuses specifically on compensation committee rotation and onboarding from the perspective of the committee chair. What are the biggest challenges to serving as a compensation committee chair today-and what onboarding approaches have been effective in practice?

In Part 1 of this series, Tim Bartl, CEO of the Center On Executive Compensation, overviewed a new resource, The CHRO Practice Guide to Compensation Committee Chair and Director Onboarding, which outlines best practices for selecting, transitioning and educating compensation committee chairs and new members. In this episode, Laurie Siegel, an experienced compensation committee chair, shares her experiences from the trenches. Siegel serves on the compensation committees of CenturyLink, FactSet, and California Resources Corporation.

Onboarding today: What boards are doing-and not doing

I think this notion...of providing feedback at...a six-month checkpoint and, [at] a year, [having] more formal discussion with the lead director, is imperative. I think very few boards do that. - Laurie Siegel, board member of CenturyLink, Factset, and California Resources Corporation
Siegel sees companies putting more energy and effort into their onboarding process. But there's considerable room for improvement, especially as boards go beyond ''the classic former director or CEO'' to, for example, actively seek younger and more diverse directors with digital skills.

''Those directors may or may not have had exposure to a boardroom before,'' she said. ''To many...experienced executives, the boardroom is an absolute black box.''

Siegel said she sees boards allow directors to customize their onboarding orientation so they can identify gaps and really dive a little deeper before they participate in their next board meeting. But demystifying the board's processes and providing company information are only the first steps.

''We don't just want these directors to come onto boards and participate. We want them to shift corporate culture. I think it takes an awful lot of confidence going in for them to really bring their full potential to the board,'' Siegel said.

To this end, Siegel and Kerstetter stressed the importance of relationships. Dinners before and after board meetings provide a rich opportunity for new directors to get to know board members on a different level. Relationship-building should also go beyond interactions with the CEO and lead director in the interview process to involve other members of the management team, particularly the CHRO.

Though seldom talked about, the CHRO has a very important role, Siegel said. She cited how the new CHRO Practice Guide provides a roadmap for the CHRO-compensation committee chair relationship, with very specific practices for working together.

First-hand challenges and expectations

It's quite awkward when a new director has a gap and nobody's talking about it. Knowing that will happen and that somebody owns that responsibility is critically important. - Laurie Siegel, board member of CenturyLink, Factset, and California Resources Corporation
With experience as a compensation consultant and a CHRO, Siegel has been through many comp committee meetings: ''One thing I knew coming in is that each is very distinct in terms of the culture, the processes, who owns what responsibilities.''

In her experience, she paid attention to others' expectations of her-and whether she had likewise communicated her own expectations clearly. For instance, discussions around CEO compensation can vary widely from board to board-how and when information is presented to the committee, along with the way it's integrated into performance-related conversations with the CEO. For some boards, the compensation committee chair is involved in these discussions to further link CEO performance and pay. In other boards the compensation committee chair is not involved.

''You've really got to understand these nuances: who's on first and what your role is,'' Siegel said. ''Every board is different.''

A growing role in shareholder outreach

I learn from our shareholders that they have opinions not only on CEO pay-they have opinions on metrics, which I find very interesting to hear. They have distinct opinions on dilution, the level of stock we give out. - Laurie Siegel, board member of CenturyLink, Factset, and California Resources Corporation
In the past, outside counsel tended to discourage director-shareholder interactions. Today, all board members need to be ready to answer shareholder questions, Kerstetter said-particularly the compensation committee chair. ''There's one area investors do not want to hear from the CEO about and that is their own pay,'' he said. ''The person they want to talk to is chair of the comp committee.''

Siegel agreed that shareholder expectations have changed significantly in the last few years. Previously, the compensation committees she chaired and served on would reach out to their top 10 shareholders. Did they want to talk? ''They would mostly say no,'' she said. ''Now they not only say yes, but they do want to talk to the comp committee chair.''

It's an equally important yet careful discussion, Siegel said. ''That is both a very scripted event because you have to be very careful that you're not saying anything that hasn't already been disclosed, but it's also a dialogue.''

Boards should come to find these transparent discussions helpful. ''I have engaged in conversations with shareholders on basically all the committees I've been on,'' Siegel said. ''I have to say thankfully it's become a very productive use of my time and hopefully of theirs.''
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