Single-Consultant vs. Dual-Consultant Model

Single-Consultant vs. Dual-Consultant Model

Two compensation consulting models have developed that are commonly seen in the market: 1) a single consultant reporting to the committee chair and working for the committee and with management; and 2) two consultants, one directly engaged by the committee and one working directly for management.

Single-Consultant Model: In this structure, a single consulting firm addresses all executive compensation consulting needs. The consultant works with the human resources team, as appropriate, to ensure that the compensation committee chair approves of any services performed.

Dual-Consultant Model: In this structure, there are two consultants. The first, the consultant to the committee, typically holds responsibilities that include attending committee meetings, reviewing proposals prepared by management, benchmarking senior executive compensation, providing an overview of market trends, working with the committee chair to ensure good governance, and considering shareholder optics and best practices. The second, the consultant to management, works closely with the human resources (HR) team and management to design incentive programs, benchmark the executive compensation levels for positions below the most senior executives, assist with executive compensation disclosure, and address the company’s other data needs.

There is significant variation within the market in terms of the division of responsibilities between the two consultants. The table below provides a detailed breakdown of the work steps typically allocated to each consultant.

Consultant to the Committee

Consultant to Management

Advise on compensation philosophy and overall positioning for senior executives Review recommendations on peer groups Prepare proxy data for CEO and possibly for other named executive officers (NEOs) Advise on amount and mix of pay for CEO and prepare alternatives for review by chair and/or committee Review management’s recommendations on compensation for other executives in advance of committee meeting and advise on appropriateness of recommended amount and mix of pay Review management’s recommendations on design of annual and long-term incentive plans Provide an assessment of covered executive pay vs. company performance Review executive pay tally sheets Review proxy statement disclosure (specifically CD&A) on behalf of the committee Advise on market trends related to executive compensation Advise on relationship between executive compensation and risk Review and recommend board of directors’ compensation Attend compensation committee meetings and executive sessions as requested

Propose appropriate compensation philosophy tied to related business and talent objectives Recommend peer groups based on business and talent competitors Prepare proxy and survey data for executives, excluding CEO Support HR in crafting pay recommendations for covered executives and senior management, excluding the CEO Support HR in developing proposals on design of annual and long-term incentive plans Prepare executive pay tally sheets, if requested Advise HR on amount and mix of pay for executives below the covered executive level Research executive compensation issues for HR Support HR/legal as necessary in drafting the proxy statement Advise on non-executive compensation issues Conduct risk review on compensation program

The dual-consultant model is relatively new and has mainly been adopted by the largest companies with the greatest concerns about the perception of conflict of interest. For most companies, it is viewed as duplicative to have two consultants work on the topic of executive compensation.

The table below summarizes key advantages of each model:

Single-Compensation Consultant	Dual-Compensation Consultants
Avoids concerns over “dueling consultants”	Typically management’s consultant has limited interaction with the committee
Easier to manage limited resources because one firm is less expensive than two	Management would normally work with its consultant but actually present the material at committee meetings
Given the rise of boutique firms, avoids the perception of a conflict of interest	In this case, committee’s consultant can develop more into an “auditor” role rather than a partner
One consultant can develop a more holistic view of the company, its strategy, goals, and culture, since it interacts with all parties (the compensation committee, senior management, HR, and other support functions)	Reduces possible perception of a conflict, provided the committee’s consultant does not provide other services to the company