Compensation Committee Best Practices: Pay Increases & Goal-Setting

Inside America's Boardrooms
In the first quarter of every new year, the compensation committee faces a full agenda. The first task is to review last year's performance results and annual salary increase recommendations from management. The second task, and perhaps the most-challenging, is to set bonus goals and targets for the current year.

In this episode, Matt Isakson, an experienced partner with Meridian Compensation Partners, outlines the biggest challenges facing compensation committees during their first-quarter meetings. For each task, Isakson offers several best practices for making these processes flow more smoothly.

(1) Processing management pay recommendations: How are most compensation committees today approaching the data-review and decision-making process? In Meridian's experience, what type of meeting format works best? How has the rationale for pay increases evolved?

[blockquote source="Matt Isakson, Meridian Compensation Partners"]The days of coming in and saying to your compensation committee, 'Well we're moving up Susie because she needs to be at the 50th percentile'-those days are [over]... The market data [is] one reference point. But what about your succession planning? What about this individual over here that's high potential? Where's your internal equity? How does this all sit from an equality perspective? There are a lot more questions-and better rationale-that management teams have to develop.[/blockquote]

(2) Setting goals & targets: Again, what are best practices (for both management and compensation committees) in approaching the goal-setting process? Isakson outlines four guiding perspectives for reviewing and evaluating management's compensation goals.

For compensation committees, meeting both management and investor expectations is quite the balancing act. Isakson zeroes in on the golden rule for committee productivity: The better the structure of your committee's process, the smoother it will go.