Human Capital Oversight – A Broader Remit
As discussed in BDO’s 2022 Compensation Committee Priorities, the role of the compensation committee is expanding into human capital management (HCM) oversight. A recent Center On Executive Compensation survey found that almost two-thirds of member companies have formally broadened the role of the compensation committee by either expanding the charter (35%) or both the charter and the committee name (32%) – e.g., Human Capital Committee. This extends the committee’s purview beyond C-Suite and board compensation into overall talent strategy including talent attraction, retention and development in an era of a vanishing workforce. Pearl Meyer’s annual survey concurs with the expanded responsibilities, noting a 28% year over year increase in compensation committees reporting responsibility for employee engagement. Publicly traded company compensation committees in the same survey indicated oversight prevalence as follows:
- Board of director pay – 79%
- Executive succession planning – 74%
- Diversity and inclusion – 49%
- Leadership/talent development – 43%
- Employee engagement – 32%
- Culture – 30%.
Pay equity is yet another ESG component being included in the broader HCM remit. But considerations extend even further.
Oversight of talent strategy requires an understanding of management’s process and procedure for identifying who and what skillsets are needed and how to secure that talent for the long term. Execution of a sound talent strategy includes engagement of employees as key stakeholders to better understand the more intrinsic workplace benefits being sought: diverse culture, inclusion, development, flexibility, advancement, transparency and trust. Cali Yost, Founder and CEO of Flex+Strategy Group, recently discussed the new reality of work reminding directors that a flexibility strategy goes beyond policy and requires a framework that includes full leadership buy-in, organization-wide training, communication, experimentation and innovation.
Activities that the compensation committee is paying closer attention to include: formalized performance review cycles, employee feedback loops through pulse surveys, and human resource reports on attrition and absenteeism, just to name a few. Additionally, access to relevant whistleblower hotline trends, normally the purview of the audit committee, may be another source of important HCM information.
Tying Human Capital Management to Strategy and Corporate Purpose
Directors should be asking the following questions in their oversight of HCM. Management’s responses should align people with the organization’s purpose and ensure talent is being utilized to support corporate strategy:
What are the company’s most desired skillsets and attributes? Do these align with achieving strategic goals?
Is there a pipeline for leadership roles? Who is being developed and how were they identified? Companies are embracing formalized programs of sponsorship and challenging executives and board members to broaden sponsorship of talent to allow for more diversity and fresh perspectives.
What training is being offered and how are employees made aware of training opportunities? Is there a process for re- and up-skilling?
Who is being recruited, how and from where? What diversity traits are being considered and tracked? The expansion of remote work has allowed for the expansion of recruitment outside immediate geographic areas. Further, broadening sources (e.g., recruiting from a wider selection of colleges and universities, disciplines and industry experiences) may allow companies to engage previously untapped factions that may more quickly fill skill gaps and other objectives.
Are current employees satisfied? How are we soliciting this feedback? What actions can be taken to drive improvement?
How can directors help impact talent objectives? The board can and should be leveraged to demonstrate a tone at the top that fosters a culture where employees feel supported and rewarded. Consider inviting a director to sit on company committees related to diversity, equity and inclusion. Directors may also serve as mentors and sponsors, as appropriate. Involvement of directors helps to demonstrate the importance of initiatives, while further exhibiting the accessibility of leadership and allowing the board to hear feedback firsthand.