“The Future CHRO’s Guide to Executive Compensation” with Ani Huang, President of Policy and Practice at the CHRO Association and Charlie Tharp, Senior Advisor for Research & Practice at the CHRO Association and the Center On Executive Compensation

This is the future of HR podcast, episode 170. So Charlie touched on something that I think is going back to your question about misconceptions. The role of the board and the comp committee in pay planning. I think a lot of times people have this erroneous idea that the executives are somehow involved in determining their own pay. And that is absolutely not the case and in particular for the CEO. The comp committee is responsible for setting the CEO's pay. The CEO is not involved in that. The board and the comp committee take a ton of time spend tremendous effort in developing pay strategies that they think will allow them to attract, retain and reward the CEO and the executives the same as we do throughout the whole organization. So I think that starts with the metrics that they select. Again, they're responsible for overseeing and selecting the appropriate metrics. They have to understand what they're paying for. If they're in a growth strategy, they're driving towards new revenue or they're in a turnaround strategy, they need to focus on shorter term operational metrics. I mean, those are all decisions that the board has to make. They think through their strategic and people priorities. They think through talent, issues of talent, retaining talent. They look very carefully at target setting to make sure that they're setting appropriate targets with the appropriate level of stretch and they're the ones determining the pay in the end. How does executive compensation shape company culture, performance and drive shareholder value? Why should CHROs think of executive compensation as a communication tool? Hi, I'm your host, JPL8, and this is the future of HR podcast. The only podcast whose mission is to inspire the next generation of HR leaders. On each episode, I interview successful HR executives and thought leaders who are reimagining, rethinking and leading our field into the future. During our candid conversation, you'll learn about their career journeys, their lessons learned along the way, and their insights on how to take our field, and most importantly, your career to the next level. Over the past three years on future of HR, I've talked with more than 150 CHROs and HR thought leaders about what separates good HR leaders from great ones. And one thing's clear, the best HR leaders see themselves as business leaders with HR expertise. But here's the challenge, most HR leaders aren't taught to think, communicate and operate that way. That's why I've created the next-gen HR accelerator, a four-week intensive, live virtual development experience designed specifically for HR directors and senior managers who want to have more impact and influence. After four weeks of focused learning and participants continue their development journey, with a 360 degree assessment, two coaching sessions with me, and peer learning with HR leaders from top companies. Over the course of the program, we focus on building your business and financial acumen, thinking strategically, influencing executives with impact, and creating HR strategy set to deliver measurable business results. Over 100 HR leaders from companies like Nike, Prudential, AdV, McDonald's, Cardinal Health, Verizon, Corning and more have graduated from the program, and now it's your turn. Our next cohort starts January 27 and enrollment closes January 14 with limited space available. This isn't just about your next role, it's about shaping the kind of HR leader you want to be. If you're ready to take the next step in your HR career, visit futureofhr.com, and if you're a CHRO, you already know your team's impact shapes the future of your organization. That's why I also partner with companies to design custom HR capability programs that build these skills at scale. You can learn more at futureofhr.com. And with that, my guess this week are Ani Wong and Charlie Thorpe. Ani and Charlie are two of the leading experts shaping how CHROs understand and implement effective executive compensation. Ani is the president of policy and practice at the CHRO Association and CEO of the Center on Executive Compensation, advising CHROs and boards across the country on executive pay, talent and the future of work. Charlie is the senior advisor for research and practice at the CHRO Association and the Center on Executive Compensation. Charlie is one of the most respected voices on pay, governance and executive compensation in the world, and in 2010 he was elected a distinguished fellow of the National Academy for HR, the highest honor in the HR profession. Together they bring deep expertise and real world perspective to unpack why executive compensation is far more than numbers and why mastering it is essential for every new and future CHRO. And my conversation with Ani and Charlie were going to discuss why executive compensation is a strategic communication tool, why context is critical in designing the effective executive compensation, what fairness means in pay systems and how future CHROs can level up their executive compensation, know how and much, much more. I'd love to hear your thoughts in this episode, so drop me a line and link in and say hello. And now let's jump into my conversation with Charlie and Ani. Charlie, Ani, you welcome to the future of HR podcast. How are you both doing? Great, thanks. Great. Thank you so much for having us. Yeah, it's great to have you both back. Ani, this will be your second time in a very short period that could be a record. I don't know when this episode will come out, but it's going to be pretty sure. And that is because you've been doing a lot, you're always really involved in a lot of strategic things. And Charlie, I'm excited to have you on because you are such an expert on executive comp and have had such amazing experiences. CHRO for Bristol Myers quib and just done so many other things, it's going to be fascinating conversations today and one that I really feel like I should have addressed sooner for the podcast in the audience. But Charlie, let's start with you. What's one misconception about executive compensation that you encounter most often, even sometimes among more seasoned HR professionals? Great question, because most HR professionals don't get a chance to really get deeply involved in it. Sometimes they'll be putting together offers to new hires or promotions, but it's generally done with the compensation department, the corporate group that specializes. What we find with new CHROs, I wouldn't call it so much a misconception. I would say that they just haven't had the exposure and executive compensation for a CHRO, pretty much surprisingly when someone becomes CHRO, the share of time and the share of mind that exec comp takes versus what they might have expected. Of course, they have all their other responsibilities, but the CHRO really is the owner of the process and content for the compensation committee of the board. And even though they only meet four or six times a year, it seems as soon as you finish one meeting, you're starting to put together the next meeting. And then on top of that, you have new hires where you have to put together a compensation package, you have internal promotions, you have new regulations from the SEC, you have shareholder proposals, you get your proxy advisor report. So it is a very time consuming heart of the job, and I think that's something that's not really appreciated. My sympathy for new CHROs, there's so many other things that I didn't have to deal with when I was a CHRO return to the office, the attacks on DEI, the interest from a lot of people in terms of how the company's being a good corporate citizen, that's really ramped up. So I think it's more not misconception, but probably lack of knowledge of what they're getting into when it becomes an exact comp focus in the CHRO role. Yeah, fair point. And it's one of those areas where unless you probably sat in the seat as a VP of total rewards or done some compensation earlier in your career, you may not be that familiar with a lot of the concepts, right? Because it is pretty technically deep. And so that's why I'm excited today. We're going to try to get a good overview of what great exact comp looks like, what matters, and we might get into some more sophisticated areas as well. So let's talk a little more about this. You have said, and we both teach at the University of Michigan's advanced HR executive program. And so I got to sit through your presentation and take copious notes, but you said something about compensation isn't just a financial transaction, it's a form of communication. And I just really stuck with me. Can you unpack that a little bit? Yeah, so that's one thing that Ani and I have been really training new CHROs about is that you think of pay is really to your point transactional. It's determining what someone's going to make and that of course impacts their livelihood and the rewards for working. But when it comes to how you design and structure compensation programs, there's a balance. You're trying to provide an incentive for the participants to achieve the organizationally desirable goals. And so what you design is the metrics that inform achieving their incentives and different forms of pay. Communication is to what the priorities of the company are in terms of communicating strategy, culture, operational expectations. So very clear communication, but since executive compensation is so publicly disclosed and it's a subject of so many newspaper articles and criticisms that in fact you're trying to balance also the extra optics. And those optics really involve a variety of different players. Investors obviously is a communication, especially what you use as your incentive metrics is to what you're going to be focusing on to drive value over time. So they can put that in their models when they're comparing you to other investments. How's it going to impact sustained performance, future cash flows, things like that. Secondly, it's an area that politicians and regulators pay a lot of attention to, especially think back to the financial crisis where the incentive arrangements around subprime mortgages and things like that were thought to be a significant contributing factor. We got to new legislation. We'll talk about later. I'm sure also communication to employees. Is there thinking about fairness. Is there thinking about how the company is taking care of the senior people versus perhaps what they're doing for other employees in the company in terms of salary increases benefits, things like that. When unions we found in the last go round, especially with the UAW negotiating their contract with the auto firms, they focused very much on what had happened to executive pay since the last contract and actually demanded in their opening salvo that they wanted workers pay to increase the same rate that executives increase since the last contract. So a real good point of leverage for unions. I think just overall we find customers react in terms of bad behavior around severance arrangements and different things. So there's a variety of sort of stakeholders that pay attention to pay and the real challenge for a CHRO is how do you balance all those different points of view the lenses that people look at pay through and some of them are contradictory. Some of them actually are difficult to satisfy opposing views and how you do that in a way that is supportive of the company maintains a reputation of the board. That's real challenge for CHROs and it's all around communication optics and what your messages you're really trying to get across to different audiences. Well, I love your perspective on this as well. So Charlie touched on something that I think is going back to your question about misconceptions the role of the board and the comp committee in pay planning. I think a lot of times people have this erroneous idea that the executives are somehow involved in determining their own pay and that is absolutely not the case and in particular for the CEO. If they're in a growth strategy, they're driving towards new revenue or they're in a turnaround strategy. They need to focus on shorter term operational metrics. They think through talent issues of talent retaining talent. I love you, brother, I've been continuing to widen the aperture around what executive comp means because I think even Charlie when I asked you the question of misconceptions, I think some people just think executive comp is just about the comp. And it's not it's not just about stock. It's not just about a bonus. It's everything else and all these stakeholders. If you're listening to this and you want to be a CHRO, you might be thinking, hmm, so I still want to be a CHRO or I've got a lot of work to do to get ready to be a CHRO. It's more difficult than it looks like on TV. So true. And also you're doing all of this to Charlie's point. You're doing all of this in a very public way. So determining pay for people who are not named executive officers, meaning their pay isn't public. It's not publicly released and filed in the proxy is difficult enough. But when you're making these decisions in this very public arena that's going to be voted on by shareholders and analyzed by proxy advisors and commented on by the news media. Yeah, that's a completely different kettle of fish. That's one of the things that makes executive compensation so different from other types of compensation is that extremely public environment in which it's taking place. Yeah, absolutely. I'm curious Charlie because you've been around for a little while in this area. How has executive comp evolved over the past 10 plus years? I mean, is it something that has changed a lot or has it pretty consistently been the same like other areas of HR? You're right. I've been doing exec comps since the late 1970s and I will tell you periodically there are big changes that happen sometimes in back to back years generally a little more time between the major changes. But if you think about changes in tax law, changes in disclosure, changes in how different forms of pay are viewed. And it's been an exciting area. I have to admit, but it is one that changes a lot, but thinking of a couple of the watershed or major changes that I've seen goes a little more than 10 years. The first one was the change in the accounting treatment of stock options. It's kind of interesting that historically if you granted employees stock options, there was no expense to the company. It didn't hit your PNL and that changed in 2005, which made companies really kind of revisit how much they wanted to grant in the form of stock options and that did change a little bit the mix of pay, particularly further down in the organization for the second level executives and further down to managers. But the real major, major change was a reaction to the change in the financial situation following the financial crisis of 2009. And we had the passage of Dodd-Frank, which focused a lot of attention on the perception, although not necessarily supported by fact that the form of compensation in the financial industry put too much risk in the system. Some prime mortgages, collateralized debt obligations, those sort of things that were packaged up and sold and people made big bonuses on it. The irony is, some of the big companies who went bankrupt, their senior executive team held so much stock that they were really punished. So it's hard to believe that they were in fact consciously doing things that were excessively risky to their own personal net worth, which was huge. They should bear sturns and Lehman brothers, those were ones where it's kind of counterfactual. But having said all that, there's a major change in the disclosure rules, a major change in the ability of shareholders to vote on executive pay, say on pay, clawbacks to take money back in the extent that financials are restated. I would say that was the watershed and coming out of that executive compensation practice has changed and one of the biggest changes was due to say on pay. Because say on pay all of a sudden your board in the compensation committee of the board are kind of getting a performance appraisal from shareholders because they get to vote as to whether the committee is doing a good job with pay. It's always helpful, I think, for a CHRO to remember that boards of directors rent their reputation to a company. So one of the things that they really worry about is if that's getting tainted or smudge on the view that they're a really good business person and making informed decisions that benefit shareholders is opposed to just trying to satisfy executives, which they don't. Johnny's point was a great one. The board deliberates very much and gets information from a variety of sources, CEOs don't set their own pay. But having said that, there's a whole cottage industry of what's called proxy advisors, people that help investors determine how to vote on things like say on pay or electing directors. So certain policies is to what they think are good practices and that's resulted in most companies moving toward a sort of one size fits all homogenized view of pay where it's equity based performance over three years. Based primarily on how your stock performs versus companies in your industry or what's called peer companies. I would say that's been one of the biggest changes and, you know, and I alluded to it. The research would suggest and we're seeing some trends that maybe that's not so good for shareholders, but if you think of changes, I would say that one of the biggest changes has been moving toward or what you might call teaching to the test. Of the proxy advisors as to how they influence the votes on directors, how they influence the votes on say on pay on executive pay programs. It's had a dramatic impact. Interesting. So instead of us having more differentiation and maybe more creativity and ideas on house who incentivize executives actually gone more towards the mean the median. Interesting. I would say historically while yeah, there were a lot of influences taxes disclosure SEC rules the some of the rules that came after the in Ron collapse on deferred compensation and what executives can do with loans and things, but I would say one of the big changes that took place after say on pay was a much more external focus on the design and communication of pay. Where historically I think there had been more of an internal focus on what are the really the unique factors that drive value in our company. How do we tailor what we do to better fit where we are in terms of our maturity as a company or competitive environment and what are those sort of metrics and forms of incentive that maybe help inform our strategy and operational excellence. And I think now there's much more of an eye toward the external stakeholders and particularly around the influence of not only in proxy advisors, but major shareholders and other advocates are what we call proponents on different proposals trying to change or limit pay. Wow, there's a lot to impact there and we're not even going to touch the Elon Musk might get a trillion dollar pay package which hits the news pretty recently, but what I'm hearing Charlie I hope everyone understands to more to my executive comp and please correct me if I'm wrong. We're talking about really that executive team that executive team when we start going down to now the second level of the VPs maybe it's SVPs in your company maybe director level. Does that the same executive comp packages are the board approving that as well. Is that now in the land of the CHRO the CEO how do we start talking about that cascade effect for people who might be thinking well I'm not going to be a CHRO but how does it affect my bonus maybe my equity grant that I got. Boards will often look at a group for sure the high five usually what's called executive officers which might be a dozen or 15 sort of people that's a SEC designation of certain officers that are impacted by securities regulations when it comes to pay and disclosure. Boards will look a little more broadly as you go down the organization the forms of pay do change so if you think of the senior most people they're making decisions that really around capital allocation around what markets were going to enter what investments are going to make and research things like it so the time frame. For the time span over which their decisions impact are very long term so you see much more of their pay and long term incentives and primarily an equity based pays you move down the organization you tend to be more focused on what are we going to do to retain and attract the talent we want which sometimes has less variability in the long term pay maybe just time investing stock as opposed to performance based stock. And further down on the organization obviously you want them focused more on the things they directly impact day to day because they're not making company wide decisions are making decisions on operational and sales and different things so you do see a different mix but having said that if pay is really meant to reinforce some of those key themes we talked about in communication. And if they're meant to sustain the sort of performance that supports strategy and mission of the company you'll see some very common performance metrics you'll see some very common through the forms of pay like profit sharing or broad based stock awards things like that so I like to say that rocks don't roll up hill and you tend to see that if there's a philosophy and a sort of strategy around pay you'll see elements of it throughout the organization. Although how it comes to life will be a little different yeah that's great so let's dive into a little more around pay systems pay programs and how we balance the short term performance you mentioned right we're driving long term value creation. What metrics organizations be looking at and how do you seem people think about this from that perspective because I think that's always this balance right quarter to quarter or how do we get to a five year goal right companies do have different approaches to short term and long term and just building on what I said earlier is that for the senior level since most of their decisions impact the long term performance of the company the vast majority of their pace and long term and something like 70% for a CEO not much less when you get to the next year. Long term is really important but having said that companies that are public live and die by quarterly results the analyst assessment of whether they're performing well or not and what happens to the stock price based upon quarterly earnings so having short term objectives that really signal back to communication performance of the company that is leading toward that long term sustained value creations important. So companies will have different measures there's no one company type measure that you can apply across all sectors and different levels of company maturity and development but they tend to bucket in something that has to do with growth usually revenue or market share. They tend to bucket in something that has to do with profitability and pre tax after tax EBITDA things like that and often then some other thematic issues that are important to them pharmaceuticals it's a new product advancement through the phases of development. Others might be introduction of new products or new markets so so you see short term it really supports operational excellence but again in areas that presumably lead to sustained long term performance so there's no one size metric that fits everyone but they generally fall in those pockets I indicated. Now when it comes to long term since you want to make sure under a public traded company especially that the performance and rewards of the executive really align with the people that own the company that are investing and buy the shares that's why you see so much stock compensation and things like earnings per share which is very common metric used in stock valuations and relative stock price performance. You see those is very, very common metrics a little bit back to our point out marginalization I'm not sure those are always right for every company but you do send tend to see more centering around those metrics so your question you do have short term metrics that may be addressed more operational issues and you have long term metrics but at the end of the day I think companies are pretty smart and saying the long term is just the summation of short term. So each year when you add up three annual awards you really get three years worth of performance which is most long term plans emphasize so there has to be pretty close alignment between what you're trying to achieve strategically and what you have operationally is your focus. Yeah really helpful to hear that kind of perspective I like the idea of short term plans equal long term success right that makes a lot of sense I've seen sometimes the executive level you know it's not intentional but they all have their individual goals they are running maybe different business units maybe they're ranked different parts or functions that have different goals and they're not always as a line. How do you get the executive team to be more aligned and really build that collaborative behavior with incentives. It's really always about the committee always has to strike this difficult balance of having an enterprise wide mentality a team mentality with the executive's line of sight what they feel like they can reasonably impact. There are several ways to go about doing this you'll see some companies that use score cards that combine company wide metrics with sort of business specific goals that's one way. You can vary the mix of awards within the incentive so maybe you have a business unit waiting which is higher in the annual incentive and then company performance has waited higher in the long term incentive plan if you're really trying to drive collaboration first specific business reason you could introduce we've seen cross functional strategic goals where the success really depends on collaboration you can't succeed without collaboration across business units. And then sometimes you'll see companies where they might have individual business goals but they'll do something like a modifier on the whole award that is based on total shareholder return so everyone's invested in the same long term outcomes long term shareholder value. Kind of as a wrapper over goals where they have more direct line of sight and this is really for the most senior executives I think that as you get further away from the leadership team you might find that it makes more sense to maybe wait the business outcomes more than the corporate outcomes that could be one way of handling it. But a lot of it comes down to culture to so there are some companies where they say no we live and die by these corporate metrics SVP and up everybody is just 100% based on these corporate metrics and then you have other companies who say no we know we really do have very different businesses and we need people to be focused on their business success as much as they are the overall corporations success so we have a different balance. It has to be it has to be connected vector strategy yeah it sounds like that's where the board comes into play with really trying to understand what are we trying to achieve what's unique about our culture. And it sounds like there's some perspectives and opinions that gets in there as well around hey we just believe this is how we do it. I have seen the multiplier effect or the modifier and frankly I felt like we just won the lottery I think a lot of people that had no impact on that at all it was like hey awesome we hit 150%. We all got a little extra this year but I know I didn't really do a lot frankly to make that happen across the board someone did something but it wasn't probably the business unit that I was in at that time. You have to be thoughtful about this because it can start to become an entitlement I'm curious Charlie your perspective on how to do this right. At the executive level again it's a philosophical discussion whether you have individual key objectives that you can do a performance brazil impacts pay and stuff. I've always been troubled by trying to sort that out because at the senior most level it's very hard to separate an executive performance from the company performance. Because at the end of the day you want teamwork you are want people especially things like when the senior teams meeting deciding asset allocation are you going to starve one business feed another you don't want someone advocating for their individual business when in fact that may not be in the best interest of the total company. So there's the pushes and pulls it's not wrong it just takes a different sort of philosophy and culture around pay perhaps than some companies have adopted but on these points a good one that if you start first with what's the overall performance of the company and then some assessment of your contribution in terms of a modifier or multiplier that may be a way to sort of square the focus on both the company and the individual. That's why I think modifiers become more thoughtful and the reuse is opposed to like 25% a stand alone regardless of company performance. It's great and as you're talking about this it makes me think back to my experiences maybe the unsung hero we're not talking about here for our CHOs is their VPs of total rewards. How important that role is in designing this and in my experience by loved both perspectives the VP of total reward has to have superior business acumen and financial acumen they really have to understand the business strategy because they're helping to design this and coach with the CHRO obviously exact comp consultant typically and the board but they're behind the scenes really thinking is through and they know the metrics they know they're trying to achieve that three or five years. So if you're in HR leader and you want to get more business acumen or get closer to what's happening around exact comp you need to take your total rewards leader for lunch or maybe dinner or drinks. Charlie and I were both formally heads up total reward so we certainly agree that the head of total warns is critical and that they need to have really strong business and financial acumen it's interesting what we're finding especially as these plans become more and more complicated and things become more and more public. What's really important ahead of total rewards is to have a what is a very rare combination of sort of technical skill and people skills so that may not have been the case 10 years ago where we were really looking for a very deeply technical person with all the business and financial acumen that you mentioned. But now that role has become much more of an influencer in the company and really needs to have those skills to be able to present to the board to talk with executives about the plan to be able to problem solve get to yes and the words of Kevin Cox rather than continually saying no. These are all skills that are maybe closer to what you might develop it as a VP of HR or C.H.R.O of a business unit versus necessarily had a total rewards historically so that's actually kind of a shift that we're seeing in terms of what C.H.R.Os are looking for. It's great to hear that it's definitely a very important role because of the technical expertise but I agree had that real impact it does feel like you have to have great people skills and just influence skills so that's a great point to underline. Before we move off the topic a little bit around the metrics though is there an example don't share any company names of course but maybe the metrics really reinforce or undermine the company strategy that you could just give to help us underline this point yeah that's a great question and you know I spend a lot of time in the pharmaceutical industry. It's one company which the how they develop metrics which was a wonderful communication and it was sort of a nice uniting sort of thematic approach to thinking of performance where they said how we really win in the marketplace how we serve our patients how we serve our investors is we focus on three things. You know what I'm saying is that there's a kind of underlying bottom line and pipeline and so when you think of different segments of the company everybody can relate to that. The sales organization the marketing organization the scientific executive so it was a really unifying sort of three-legged stool for how the company would succeed which I I thought was just brilliant and having that as a unifying theme that then can be applied in compensation can be applied in terms of how people see that. So I thought that was an awfully awfully good approach on the other side maybe where metrics are picked that don't quite work a quick example in pharmaceuticals there was a period in the 90s when a lot of the big pharmaceutical company said you know what the thing that really drives our performance is marketing and consumer advertising. And some of them left the science slip a bit. I mean you might be able to sell your one product really well by having all the commercials and most of us are bombarded with pharmaceutical commercials. But if you don't have investment similarly in science so that sort of maybe going too far toward one sort of theme that you think is successful and then starving the other side and not investing enough right now I think the area where that's true is companies that aren't investing sufficiently in technology that's really going to change their industry. So I think being really careful on what you think works or has worked versus what might work in the future blockbuster versus Netflix and those sort of comparisons where people really missed key themes but I think being very careful that you do really understand back to your earlier question what drives the financial and customer success of the company and having that sort of balanced view of the different drivers of the company. Very, very important yeah great examples. Thank you for that on a you've also talked about that employees will accept these pay differentials to understand that maybe a CEO or executive is going to make more if the systems fair and honest. So was that like in practice how do you create transparency without creating more problems. It's interesting because over the past few years we've really seen this in action because there has been a much greater demand for pay transparency than ever before I think a lot of companies have embraced that. But really it's about employees wanting to know that there is a methodology for how pay is determined this isn't just something that is randomly being determined or even that it's just based on what you used to make there's an actual methodology for how we're figuring out what market pay is what is our internal fair and equitable framework. And then most importantly what are the criteria for how I can grow my pay what is my development including my career development but also pay development at this company. If those three things are made clear and transparent to the employee that's really what they mostly care about we learned about this is really interesting when the CEO pay ratio came out and started being disclosed in 2017. And a lot of people were very focused on this saying that oh you know disclosing this differential between CEO pay and median employees is going to have a huge impact and there's going to be people are going to be so upset. And of course we all know in the end there was like basically very little impact but that made sense to those of us in the exact comp profession because we knew that people understand what the CEO makes very few people are out there comparing themselves to the CEO. What they care about is what the person next to them is making am I being paid fairly compared to the people who I work with every day or the people who I view as my peers. And if I want to get paid more do I feel like I understand the progression of how to get paid more that's really what most employees are focused on and if they feel like that's not fair that's going to cause a lot more stress and looking at this CEO who they already knew was going to get paid a huge amount of money is not really relevant to them. Yeah so it's a really point because yeah a lot of people don't want to be the CEO anyways then you want the paycheck but they don't want the job right and the schedule and everything goes with that. So that makes a lot of sense saying you know thinking about are you transparent with who's next you and so we've seen a good movement there. It feels like we're in a better place I don't know if we all the way to bright especially with job postings I want to move on to insights and kind of actions for HR leaders and so on I'll start with you then Charlie you can follow up. If an HR leader wants to strengthen the link between compensation strategy and their company what's the one step they should take right now. I thought this was a very unfair question JP just one step I have many many steps that that they should take. So one step is really hard I'm going to do two steps you can do three if you want three is fine okay. Okay so step number one read the proxies of the peer group most people will have done this a shocking number of people have not done this read the proxies of your peer group understand what metrics they're using and why I think that's number one. Number two there are some modeling tools out there so there's one that equilar uses that actually we help them to develop it it's called the incentive plan analytics calculator. But you don't have to use that you could use any tool finance department may be able to do it and really test your assumptions on your current metrics so you have strategic goals you want to achieve. Let's look at your metrics and do a correlation analysis to determine if those metrics are actually leading to long term success in the areas you want it to over time so there's ways to do that you can take a look at okay this combination of metrics. Is it or is it not correlated with long term shareholder value over a 10 year period so it's a historical analysis but sometimes you'll put in your group of metrics and find out that they're not. Or they're not correlated with long term or I see whatever it was you were looking for so I think doing that analysis rather than just assuming that you know okay here's our strategic goals and we're going to pick these metrics and that's going to help us get there I think that's also really critical and then lastly I think talking to shareholders so just understanding what shareholders care about how they're looking at performance can really help connect strategy and compensation on the ground. Great Charlie anything you'd add or I think I need hit the really great points that when I was head of human resources my best friend was the CFO because really understanding how they were working with the board and the CEO to develop not only strategy but to set the financial objectives of the firm so to really understand the finance of the company to understand how the company makes money. And then on this point how do you make sure that the lens that you have on your company is informed a little bit by what goes on in your industry and why you are the same or different aspects of paying performance there's no magic answer but I think the more that you can dig in and read the 10k the md and a section of it around the different risk of the company and such you will be pretty smart and then use those tools that that I mentioned then test what you're thinking. I think that's a great combination of learning from others but also testing but I think that's great these are really good tips for I think you're C.H. Rose to maybe next up C.H. Rose or V.P.C. of HR to build their skill set. If you're a next-gen HR leader maybe make career and aspiring to move up what resources books courses, real-world practices would you recommend to start to build expertise and knowledge in exec comp. Charlie will start with you and we'll go to Any. I get to ask this an awful lot and as you know I teach graduate courses in exec comp and there's no textbook because by the time they're written they're usually out of date and who has time to sit down and read a thousand. Page treat us on exec comp so reading proxy statements that's 101 not only your company and your peers but other companies I learn a lot by reading across different industries things that are being emphasized and they're pretty easy to read I have to admit over the years reading a proxy now has become much easier. It used to be a bunch of techno babble but now it's plain English that was a requirement in the 2006 changes in disclosure from the SEC that it should be written in plain English and I think companies have done a pretty good job of that. So that's one I think the other is it's really you would be benefited by reading our weekly update that Any puts out and of all the trends and what's going on that's a shameless commercial. Having said that a lot of the big consulting firms and law firms also for free publish newsletters that if you read those you'll get good information and they're easy to sign up for curiosity. And I think just reading more on what's going on in business and then you'll get some hints is to trends that always make their way back into executive compensation it through metrics or through how pay is structured so there are a variety of sources but there's no one sort of. If you go read this book you'll be really, really smart now as the courses we teach a couple different courses we have one that's all online that people can sign up for we have one that's more of a zoom based course where we really do quite a deep dive with some really good thinkers and on he's put together a wonderful training program accessible to members of of the HR policy association. And so there are some courses and other universities offer them, but I think that reading broadly there's no substitute for that great on a well that was a very complete answer. But the only thing I would add to that is let your leaders know that you're interested in this. A lot of times state your own with the heads of total words would love to know who is interested in exact comp and would really love to develop that skill set you don't have to want to become the next head of total words to want to get a little bit deeper on this topic I think if you let your leaders know they'll be delighted to help you find that expertise maybe set you up with the head of total words potentially in the company for a little briefing or even maybe somebody on the CF. Those team will be delighted to tell you every detail of what they do, but I think just learning more about what your own company does is often really helpful because you you have the benefit of understanding the context much better with your own company. So that would be my recommendation picking up on that word on event I'm sorry I hadn't mentioned it earlier in our discussion context really matters when it comes to exact comp. One thing I always advise is that a CHRO should find out what their senior management team reads my CEO red barons every Sunday and usually I would get during the week you'd stop in and ask me a question and it was about an article somewhere in there in the business journal every Sunday morning which I didn't like barons to be honest I would run and buy it at our local news stand that was before we had all this online. I'd read it because sure as heck there'd be something in there that he had asked about and it usually had to do with culture or something and reading industry journals depends on your industry there's always publications the analyst reports. If you really want to understand the exact comp first start with context now it just add one more thing and that I learned as a CHRO one of the most valuable training for me beyond the technical. Was more a liberal arts perspective because when you're dealing with exact comp you're doing with social issues that come into a company think of the anti DEI ESG sort of stuff you think about the motivation and interests of people that was informed through understanding behavioral science really understanding broadly the context within which you're practicing your skill your trade. And that applies to exact comp or other aspects of HR actually most aspects of jobs period but equally I think important to technical is understanding the context within which you're trying to practice executive compensation or human resources in general very comprehensive answer for both you thank you both. I'm going in this with the question asked all guests and that is what is one word of phrase you believe will define the future of HR over the next five to 10 years Charlie will start with you and then on you can wrap us up. Justice yeah gets back to I think part of on these answer around perception of fairness and all that the head of HR I think is in charge of organizational justice. And I think it has to do with how people are treated the respect that they have the appreciation of differences the opportunity those are all really for me the heading of justice and again I'm trained in was so I think that way. And when you think of fairness a distributive justice is the company doing real well but you're not increasing pay or executives getting big increases others are is that really distributive justice within an organization and on his point on process procedural justice are you making sure that within the social architecture of the company. The people think that things are done in a way that they could call just fairs a hard word because what I think fair. I mean there's a lot of different reference points on determining fairness justice is a little easier to define because it has to do with sort of really starkly defined rights and wrongs about what you think is acceptable as opposed to fair so I like to think in terms of organizational justice both on the procedure process and both in terms of the distributive or making sure that the rising tide lifts all ships. Any you asked me this before JP I think I said something like do it now or just do it which I still think is going to define HR over the next five years but it's funny this having this conversation plus all the conversations we're having on AI in addition to just do it I guess I'd say best fit. And what I mean by that that we just comes up a lot in executive compensation and I think we're going to see it in AI to that it's so easy to feel pressure to follow the herd in executive compensation we talked about that today how it's become so homogenized and why there are so many incentives for companies to do the same thing is everyone else and not very many incentives for them to do something different but I think over the next few years this concept of best fit what is right for my organization and it might take a little more courage. To be able to say look I realize everybody else is doing this but here's why I think that we should be doing this more aligned with our strategy maybe we're not going to roll out AI the same way everybody else does maybe we're not going to have the same exact complaint is everybody else so I think best fit is my term for today. I love it the future of HR is about best fit justice thank you on a thank you Charlie for both being on the future of HR podcast I love it great conversation thank you. Thanks JP thank you so much for listening this episode of future of HR podcast thanks again to Charlie and on him for a powerful discussion on why executive compensation matters more than ever and what every aspiring CHRO needs to know to navigate strategy fairness and stakeholder expectations as always you can go to future of HR dot com to view all of our past episodes and learn more about our mission to inspire the next generation of HR leaders. And if you enjoyed this episode of future of HR I think you'll enjoy my future of HR newsletter which is the only newsletter that's focused on helping you to elevate your career and business impact. Go to future of HR dot com to subscribe and be sure to download my HR leaders blueprint which is 18 pages of real world advice from 100 plus HR thought leaders with simple actionable improvement strategies to advance your career. And we back next week with another amazing guests Rachel cook Rachel's the founder of lead above noise and a leading expert in work design Rachel believes work doesn't have to burn people out to deliver results and she spent her career proving that better performance and better well being start with better work design. You won't want to miss this great conversation thanks again for being a part of our future of HR community. [MUSIC]