Finding fairness in distribution of compensation funds
The Compensation Committee Chair, Earl, is set to meet with the CEO to discuss the upcoming annual compensation review. The company has performed well, soundly beating street expectations and outperforming competitors.
The CEO wants to revisit her compensation and wants a significant increase. She is currently paid in the 25th percentile among her peer group and is receiving calls from recruiters.
The Compensation Committee has a fixed budget and must use the funds in the best way to motivate and retain key players and the employee team. The increase the CEO is requesting would require reducing the previously planned bonus packages offered to the rest of the executive team.
How should Earl present this issue to the Compensation Committee?
Discussion Questions
As Chair, should Earl take a stand when presenting the issue to the Committee or remain neutral?
The compensation plan is outlined ahead of time, but generally leaves room for board discretion. Which kinds of things justify a change in the plan?
What’s the purpose of the Compensation Committee and how does it inform what they should do?