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Executive pay attracts attention and scrutiny as companies and society at large face the challenges of rising prices and interest rates. It is a true challenge to strike the right balance between executives and stakeholders. The big question is: How can companies strike the right balance?

In this podcast, Dr Sabine Dembkowski, Founder and Managing Partner of Better Boards www.better-boards.com, discusses executive compensation with Paul Norris, Senior Partner of MM&K Limited. Paul has over 35 years' of experience in executive compensation and advising on remuneration structures, policy, performance, and governance.

"There's no doubt the role of remuneration committees and remuneration committee chairs has become more demanding"
Paul sees remuneration committees (RemCos) facing more demanding and more complex challenges than in the past. Why? It comes down to four key challenges.
First, there's a much broader range of interests and objectives from a larger group of stakeholders to manage than ever before.
Second, RemCos must pay attention to official regulatory groups and unregulated proxy agents nationally and internationally.
Third, management succession planning is becoming more important. Paul sees a lot of scope and a good argument for mixing and blending the work of the nomination and remuneration committees. He feels this collaboration can bolster diversity and inclusion at the board and executive levels.
Fourth, there's the challenge of solving the pay-for-performance equation.

"What works well is being visible"
With so many stakeholders and interested parties to satisfy, Paul says the role of the remuneration committee is expanding. To fulfill that role successfully, he feels communication is key. Good communication between the committee, HR, and the CEO and targeted communication with stakeholder groups.

"Don't report what you'd like to do, report what you have done"
Paul says what shareholders are looking for is clear reporting of actual results. Clear disclosure opens the door for feedback from stakeholders, shareholders, and regulators, both in the public sphere and internally. Getting this feedback is vital for effective governance and compliance, too.

"There's a much, much greater use of ESG performance targets"
One trend Paul sees globally is linking ESG targets with executive incentives on a much broader scale than before. It's not just a trend in the regulation, though that's a part of it, but there's also great pressure from investors.

Controlling the company story and crafting a consistent narrative is key. You want to tell a story both stakeholders and regulators can understand and be able to match your story to demonstrate progress against targets.

"The money's got to come from somewhere"
Paul says there has to be a balance between financial and non-financial performance targets in incentive plans. He feels that there will continue to be a rising use of blended performance scorecards, where most incentive payments will be based on financial performance measures, and the balance will be made up of strategic and perhaps ESG measures. This ensures that companies can continue to thrive financially, as the money for pay packages must come from somewhere!

The three top takeaways from our conversation are:
1. Don't be afraid to ask the right questions. They may be difficult questions, and

If you would like to become part of the Better Boards community, learn about our distinctive approach and explore opportunities to work with us or contribute to The Better Boards podcast series, get in touch at info@better-boards.com. We love to hear from you.

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