58. Who Should be on Compensation Committees?

SCRIPT: I feel like a bunch of what I’ve said before on One Minute Governance might make it seem like nobody could possibly be a good director. I mean, if everyone in the room needs deep technical expertise, sophisticated interpersonal aptitude, and curiosity – plus diversity of demographics, personality, and style…I mean, come on, right? Well, let me add another wrinkle. Let’s take a fictional board that has all of that and think about which directors should be on the compensation committee. What would the “dream team” look like? You might want someone with executive experience in an organization of similar size and complexity, so that they can bring the perspective of how compensation affects someone in the real world – someone like them. But then again, they probably have an interest in nudging executive pay higher in general so that they can benefit from the upward trend. Plus, different people react differently to the same incentives, so... Well, what about someone with no experience with executive compensation at all, who might ask cool questions and inject interesting new ideas? But like we discussed on the last episode I think it’s a pretty big risk not to have people who really understand the nuts and bolts. This is really hard. But I assume you’re interested my opinion, and here it is: treat it like a moving target. If you’re getting the results and behaviour you want from your CEO, and the compensation committee is asking good questions, and the board feels fully in the loop – you’re probably in good shape. If not, shake things up – NOW!