While internal communication about executive compensation is a growing priority for businesses and regulators, outside directors and internal management differ on their perceptions of how effective that communication is, according to the results of a new study.
While outside directors said the level of communication was “just right” (88 percent), only about half of management shared that sentiment (56.7 percent) based on a survey done by compensation consultant firm Pearl Meyer & Partners.
On the flipside, there was a more extreme variance; only 8 percent of outside directors said there was not enough detail, while 42.7 percent of management respondents said there wasn’t enough. The study also revealed that it’s more important for executives to understand the aspects of executive pay than for shareholders (99 percent).
“Effective communication to executives about the design and rationale of their pay programs is critical to the long-term success of organizations,” David N. Swinford, president and CEO, Pearl Meyer & Partners, said in a statement. “It’s important to establish a clear link between business goals, what’s required of executives to drive those results for the company, and how their actions will impact their compensation.”
What does all of this mean? There is a disconnect between what directors and managers believe in terms of a company’s communications strategy when it comes to executive pay. But for organizations to achieve long-term success, they need to focus on developing successful internal executive compensation communication. Pearl Meyer & Partners offers three main takeways:
- Make sure your company is expending the same time and energy on planning for communication as it does on plan design.
- Challenge your tactics for communication strategy and implementation just as you would with any plan design recommendations.
- Document a strategy and implementation plan that outlines key messages, audiences, drafting/reviewing and approval roles and responsibilities, as well as the frequency and timing of communication when plan design changes are approved.
Executive compensation continues to be a controversial topic. The Securities and Exchange Commission has discussed clamping down on its rules regarding executive compensation. Agency leaders met with representatives from labor unions and other groups the first week in July. The meetings concerned subsections of Title IX of the Dodd-Frank Wall Street Reform and Consumer Protection Act and dealt with transparency of executive compensation and how that compares to salaries of workers.