Are Boards Taking on Too Much?
It’s not your grandfather’s comp committee anymore. Traditionally, compensation committees reviewed the CEO’s performance and decided on that officer’s pay.
But nowadays, the compensation committee does a lot more. Increasingly, and especially at larger banks, I’m hearing about expanded titles for the board’s compensation committee — names that suggest a much broader agenda. Boards are adding nifty-sounding label to this essential committee, such as “human capital” and “talent.” Sometimes, it’s the “human resources committee.”
At Bank Director’s recent Bank Board Training Forum in Nashville, Tennessee, the question I kept hearing was: Do we need to change our compensation committee’s name? The concern underlying this question was that directors are expected to do more than just approve senior executive pay.
That gets to the difficult role modern bank boards play. Directors are cautioned to let management run the bank, while they’re expected to hold management accountable at the same time. The last three years have elevated the pressures on boards to become knowledgeable about bank talent and pay, especially as competition for talent has heated up and pay has risen across the board.
“There’s been a recognition at the board level about how critical your people are to the organization and the risks that come to the bank if you’re not managing that well,” says Daniel Rodda, a partner with Meridian Compensation Partners.
Plus, there’s nothing like a crisis to put regulatory pressure on boards to expand their roles. That certainly happened after the last financial crisis of 2007-08, with the joint banking regulatory publication of Sound Incentive Compensation Policies in 2010. “The board of directors of an organization is ultimately responsible for ensuring that the organization’s incentive compensation arrangements for all covered employees—not solely senior executives—are appropriately balanced and do not jeopardize the safety and soundness of the organization,” the guidance says. The 2023 spring bank failures promises even more scrutiny to the risk-reward dynamic of pay structures. Rodda says his board clients at banks above $100 billion in assets must address regulators’ questions about culture, risk, retention policies and workforce planning, as well as whether there is sufficient staffing to handle control functions.
The old adage for corporate boards is “nose in, fingers out.” But increasingly, it seems directors are expected to stick their noses in more places.
• Naomi Snyder, editor-in-chief for Bank Director