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Article | Executive Pay Memo – UK

Future of the Remuneration Committee – the voice of the Board Director

Executive Compensation|Talent|Total Rewards
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By Jessica Norton | October 15, 2020

Findings from interviews with 170 board directors around the world.

Board members and executives are increasingly focused on environmental, social and governance (ESG) issues due to pressures from a variety of stakeholders, including investors, employees, customers and suppliers. Human capital — a key part of the “S” in ESG — has also become a key issue as boards consider exercising better oversight and governance processes on such issues as inclusion and diversity (I&D), pay fairness and culture.

As we look through existing literature on ESG and HCG, we find two material gaps. First, corporate governance practices vary quite significantly by jurisdiction, and the ESG/HCG discussions have largely focused on major developed economies in Europe and North America. Second, and perhaps more importantly, publications on ESG and HCG have generally reflected perspectives from activists, institutional investors and consulting firms. We believe that it is important to understand how board members are addressing these issues around the boardroom table and how these discussions may evolve in different jurisdictions.

Hearing directly from board directors

It is against this backdrop that Willis Towers Watson interviewed 170 non-executive directors and remuneration committee chairs and members on three core themes:

  1. 01

    Shareholder primacy and trade-off between profitability and organizational purpose

    • Do directors continue to believe in shareholder primacy? To what extend do they represent non-shareholder stakeholders of the company (e.g., the community, employees, customers, creditors)?
    • Do directors see organizational purpose and profitability as a trade-off? Do they agree that purpose drives long-term, sustainable value creation? To what extent do they see a business advantage in having a well-articulated organizational purpose?
  2. 02

    ESG priorities and agenda

    • What should the board’s and the remuneration committee’s role be in shaping and driving a company’s ESG priorities and agenda?
    • Do directors favor the inclusion of ESG metrics in executive incentive plans? What are their main considerations when making this decision? What are the criteria for selecting the right ESG metrics?
  3. 03

    Human capital governance and organizational culture

    • What do remuneration committees expect of management on human capital reporting and strategy? What is the right scope for human capital governance?
    • What is the board’s and the remuneration committee’s role in shaping a company’s organizational culture?

We are incredibly thankful for and humbled by the collective voice behind the directors we spoke with, most of whom serve as remuneration committee or board chairs for at least one company. The 170 non-employee directors we interviewed represent all continents except Antarctica, providing a truly global perspective on these important issues.

Beyond geographic diversity, we were looking to include perspectives from a diverse and representative sample of directors. Approximately one-third of the directors we spoke with are female. And while the vast majority of the directors we interviewed sit on boards of publicly traded companies, we also heard from directors who serve on the boards of other types of ownership structures, such as family owned, private equity and mutuals.

Our findings

Over the coming months, we will be publishing a series of white papers to summarize the findings from these global director interviews. This groundbreaking research will provide a holistic perspective on how global ESG and HCG issues are addressed in the boardroom, shedding light on the evolving future of the remuneration committee.

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