Compensation committees are required to monitor far more than executive compensation. In recent years, their mandate has expanded to include talent development, succession planning, culture, diversity and broader human capital oversight. Many companies have responded by creating dashboards and standard reports, which, while useful, are insufficient. To truly fulfill their governance role and drive strategic value, committees must move beyond oversight to discuss and shape how human capital drives the long-term success of the organization. The focus of a best-in-class compensation committee should be on identifying key strategic priorities or challenges in human capital areas that have a real impact on performance. The dashboard is excellent. Use it as context for a larger conversation.
Below are sample questions that committees can use as a starting point for having the “right” type of discussion about human capital to gain actionable insight, identify risks early, and help management build competitive advantage.
1. What core capabilities does your organization need now and in the future? What are the implications for leaders?
The successful implementation of a company's strategy usually depends on one or more of a small number of distinctive competencies, such as innovation, efficiency, consistency, and customer focus, which are essential to winning in the marketplace. The committee should seek clarity on which functions are most important and where they should be located across the company, within a specific function, or concentrated in key roles. A gap analysis of these needs can determine whether talent needs to be developed in-house or acquired externally. These types of discussions help committees assess whether the organization not only has the right people in the right roles today, but also whether it is building a workforce to deliver tomorrow.
Equally important, the committee must identify the leadership competencies needed to drive future success and use them to assess and develop the top leadership team and the levels below.
- If you do this: Update progress and review details once a year at each regularly scheduled committee meeting.
- how to do this: Typically in the form of a discussion document, with optional slides containing analysis and commentary.
2. How does the executive team function individually and collectively?
The ability to execute a strategy is determined by the strength of the team responsible for leading it. The committee should expect regular updates on executive performance, team dynamics, and leadership changes (usually from the CEO with input from the CHRO). This includes evaluation of individual leaders (against the required leadership competencies listed above), group cohesion, and successor readiness. Directors often find this to be the most engaging conversation, allowing them to see first-hand whether leadership is aligned, resilient, and positioned to deliver on the company's priorities.
- If you do this: The CEO will provide updates at each regularly scheduled committee meeting. Leadership assessment and development discussions may occur several times a year.
- How to do this: CEO updates are typically verbal agenda items with no slides or details. Year-end performance discussions regarding compensation issues, as well as discussions about leader evaluation and development, can take a different approach, typically sharing goal achievement, development progress, and summary evaluation reports.
3. What is the overall health of the organization?
Financial results show results, but human capital metrics reveal the underlying conditions that drive results. Employee engagement scores indicate employee morale and retention risk. Diversity metrics show whether a company is cultivating a broad talent pipeline and leveraging different perspectives to drive innovation and better decision-making. A span of control analysis reveals whether your leadership structure enables agility or creates bottlenecks. By tracking and interpreting these signals, committees can identify emerging cultural or structural issues early, before they threaten to be acted upon.
- If you do this: We take a close look at our engagement scores once a year and reflect on this information throughout the year, along with updates on other topics, as appropriate, at each regularly scheduled committee meeting.
- How to do this: Usually in the form of a dashboard report with key highlights. Engagement-type work should include more detail.
4. Does your organization have the right culture to foster future success?
Organizational culture can be an elusive factor, but it is the most powerful factor determining future performance. The committee must actively discuss the current culture and what is needed for the future. Aspects of culture that often need improvement include organizational speed, ability to pivot, and accountability. Engagement scores can provide insight into some of these areas and also provide management teams with a source of valuable anecdotal data to add to the overall conversation about culture.
- If you do this: Host a culture discussion at least once a year when engagement score data is available, and share updates on other topics at each regularly scheduled committee meeting.
- How to do this: Discuss in the context of business strategy. What does the organization need to be able to do to achieve this vision? What kind of culture is required? Where are we in our culture today and what needs to change going forward?
5. Finally, what about succession? Who are likely to be future leaders?
The CEO and CHRO typically discuss executive succession with the board of directors, as well as the compensation committee and nomination and governance committee. Compensation committees can partner with the CEO and CHRO to robustly discuss potential CEO candidates and potential successors for other executive roles. In addition to discussing the strengths and development areas of each replacement candidate, the committee should also ask tough questions about whether the talent bench has sufficient depth and strength to meet the future needs of the organization and how key leaders will be developed to fill these new roles.
- If you do this: At least twice a year. It's never too early to start discussions about CEO succession.
- How to do this: High-level review of each candidate's assessment results, review of development plans and progress against plans. The CEO and chair can drive this discussion.
Compensation committees can and should deliver strategic and organization-wide value.
As the committee expands its oversight from compliance-focused reporting to strategic dialogue, the committee's role is elevated from payroll administrator to organizational administrator. This approach not only meets growing investor and regulatory expectations, but also positions the committee as a key partner in shaping the company's long-term resilience and growth. The challenge and opportunity is to ensure that the human capital conversation is not just a check-box review, but a catalyst for building the workforce advantages that will define future success.
