The Human Capital Management Mandate for Boards: Committee work goes beyond compensation now.

• Author: Jones, Blair
• Position: COMPENSATION MATTERS

For years, companies have been moving to treat employees as an asset, not an expense. The pandemic and social protests have only intensified this trend, so that human capital management (HCM) is now a front-and-center issue. With long-term success increasingly depending on attracting, retaining and engaging talented people, HCM has become a concern not just for senior executives, but also for the board of directors.

Succession planning was an early area embraced by boards, as they realized the exposure the company faced when it depended on a single CEO or group of executives. Lost time and momentum from poorly planned transitions, and the potential cost and change management required with leaders from outside, led boards to get ahead of succession issues with paths for both emergency and planned events.

Diversity, equity and inclusion (DEI) have become equally important imperatives, for reasons of social justice, a sustainable workforce, a strong employer brand and the correlation of DEI with better performance. This means companies need strong talent planning and leadership development to identify and build the skill sets of a diverse workforce. It also means that companies need to pay attention to the organizational culture and the environment its leaders are creating to enable individuals to bring their full selves to work.

These trends have prompted compensation committees to go beyond executive pay and assess the broad drivers of employee and leadership performance. Many boards are expanding their compensation committee charters and agendas to include HCM priorities or are creating separate HCM committees. Here is language from some recent charters:

* "Receive reports from management regarding significant conduct issues and any related employee actions."

* "Annually review the diversity of the company's workforce and its diversity program."

* "Oversee the company's culture, including management's efforts to foster a culture of ethics."

Indeed, 47% of the Fortune 100 have changed their compensation committee names (examples include leadership development and compensation, compensation and human resources) to capture this broader focus. Adding new HCM provisions in the committee charter and/ or changing the committee names are first steps, but how can the committee assume these broader responsibilities for the highest impact?

Where HCM responsibilities are best covered

After establishing their priority HCM areas, the board's next step is...