Center-Led Panel at CHRO Summit Explores Role of CHRO in Linking Strategy, Governance and Compensation
March 18, 2017
At HR Policy Association's CHRO Summit this past week, Center On Executive Compensation Chair Pam Kimmet, Chief Human Resources Officer, Cardinal Health Inc., led a discussion of how CHROs can add long-term value to their companies through a focus on linking incentive metrics with strategy and sustained value. The discussion also zeroed in on the use of environmental, social and governance (ESG) metrics. Ms. Kimmet set the stage for the discussion, noting that "the pendulum is gradually shifting away from the singular focus on using Total Shareholder Return in incentive plans toward metrics that will better support company strategy." Shelly Carlin, Executive Vice President of HR Policy Association and its Center On Executive Compensation, discussed the Center’s development of a new tool, hosted by Equilar, called the Incentive Plan Analytics Calculatorsm that will help companies assess the relationship between incentive metrics and long-term shareholder value. David Chun, Founder and CEO of Equilar, who also participated on the panel, explained that the tool, also called IPACsm, will be useful to companies and investors alike "in the era of Say on Pay 2.0," where investors are showing much more scrutiny of pay plan design and metric selection. The panel then turned to Sarah Teslik, Of Counsel at communications firm Joele Frank, to discuss the new landscape for ESG issues with regard to companies and the renewed interest in the disclosure of human capital metrics, which are so-called “social” metrics. Ms. Teslik noted that while almost all major shareholders have looked at governance issues over the past few years, the focus on environmental and social issues is newer and places additional pressure on investors. She noted that "many investors are obligated to disclose to clients that they do something about environmental and social issues, so they have to ask." Ms. Teslik recommended that all companies obtain copies of their reports from information providers such as MSCI Analytics and Sustainalytics in order to be better prepared for discussions with investors. Finally, Ms. Carlin described the Center’s role in forming a working group with Bloomberg to review ESG and human capital metrics currently in use by Bloomberg to determine if the metrics are appropriate and accurate and to identify metrics that could be dangerously misleading.