Talent recruitment and retention: one of the main challenges facing the Remuneration and Appointment Committee
Remuneration and Appointment Committees (R&AC) should promote and approve strategies enabling boards of directors to recruit and retain talent in a competitive landscape, on the basis of equal remuneration schemes that motivate senior management in the long run and align their interests with those of the company and shareholders. This is one of the main findings of ‘Strategic role and new challenges facing the Remuneration and Appointment Committee’, a survey by the Esade Center of Corporate Governance, in conjunction with Mercer, of more than 100 board members, which also emphasizes how little attention this committee pays to tendencies regarding talent and its scant monitoring of the risks inherent in a lack of talent.
Some 85% of those surveyed believe that the people strategy discussed and approved by the board is in keeping with the policies and practices defined by management and implemented for employees. This percentage falls to 67.7% when asked whether R&ACs often discuss the management of human capital and talent, a figure similar to that of adapting to the new talent scenario marked by the pandemic (58.6%) and the consideration of external factors (political, economic and social) that might affect the human capital management strategy (61.6%).
“Talent tendencies have yet to be incorporated into R&AC discussions about strategy. These committees, with help from managers, must encourage discussions about more innovative practices to help provide a competitive edge or greater readiness for possible disruptions in business management,” said Mario Lara, director of the Esade Center of Corporate Governance and co-author of this report. “In order for R&ACs to attract and retain talent," explained Lara, “they must implement competitive remuneration programs and development programs, together with policies that create an attractive work environment.”
Juanvi Martínez, senior people partner at Mercer Spain and also co-author of the survey, highlighted that “attracting and retaining critical talent is the greatest challenge facing R&ACs, so strategic discussions will increasingly cover aspects related to distinguishing, personalized value propositions for employees, and also a greater reflection of metrics linked to people and critical talent in the short- and long-term goals of management teams.”
Promotion of diversity or remuneration policies
One factor that CN&Rs are committed to is the advancement of diversity, equity and inclusion. According to the survey, the commitment of boards and CN&Rs is very high (85%), although this figure falls to 62% regarding the availability of metrics to monitor this indicator. There is also the challenge of greater regulatory pressure to promote gender diversity on boards of directors, due to the future transposition of the new European directive about parity in management committees.
Another of the major challenges facing R&ACs is the revision and updating of remuneration policies to ensure that they are reasonable, transparent and performance-based. This is in addition to the growing importance of ESG, sustainability and corporate social responsibility criteria, which will increase in coming years, and which R&ACs must take into account when assessing potential board members and also when designing remuneration schemes. The authors of the survey also mention the impact of technology and digital change and possible changes to regulations and the regulatory framework, which may affect the development and future of these committees.
The difference in succession planning
The study highlights the increased involvement of R&ACs in mapping the succession of companies’ CEOs (68%) and senior executives (58%), although it is important to do so with regard to the president of the board (51%) and other board members (31%), but minimal (7%) in small and medium-sized companies. As a result, R&ACs need to promote succession planning and also the mapping of the skills on the board. Generally speaking, the survey concludes that the challenge of helping facilitate the match between the skills of boards and the needs arising from their strategies has yet to be dealt with.
Finally, the survey concludes that the vulnerabilities associated with people management, talent and succession are contemplated better by risk maps than by the contingency plans to minimize these risks, and in many cases, this can affect the implementation of strategy in many companies, particularly when we’re talking about critical talent.
