An Example of a Board Chairman’s Revelation About Peer Groups

Mark Van Clieaf is a Managing Director of MVC Associates International

I received a phone call from a director yesterday who is the independent Chair of a large company in the telecom industry.

Last week, they had their Board compensation meeting and discussed executive pay - and the Chair asked the question if the companies, roles and compensation data they were comparing were truly peers. Or did some type of an adjustment need to be made.

Using our "Level of Work" principles and 6 factor framework, the Board had a discussion and agreed that the complexity of the company and CEO/NEO roles and their accountabilities were NOT directly comparable for most of the 11 selected peer group companies. No one in the past had asked this question or challenged the compensation survey/proxy data they were getting from the compensation consultant.

The result is the Board and the CEO agreed the company/CEO role was not as complex, not directly comparable - and the Board decided to now move  targeted total compensation for the CEO/NEO from above the median of the peer group to the 25th percentile going forward, to better reflect the Level of Work/Accountability and equitable pay relative to the selected peer group.

The compensation consultant played a minimal role in the board discussion - except to concur that the end result seemed to make sense.

The bottom line was a 35% downward adjustment in targeted total direct compensation for the complete executive team. Thought you might be interested that at least one company and one chair/board has asked the right questions about whether the compensation data being relied on by the Board had been properly job matched and compensation calibrated - and then exercised judgment with Level of Work as a framework, and re-calibrated CEO/NEO pay downwards to a more equitable/defensible level for all stakeholders.