What to Look for in a Consultant

What to Look for in a Consultant

Most consultants that you interview will have adequate experience to provide you with the technical advice that you require and will come from a firm with significant resources to provide required market data. Your final selection will therefore come down to your views of how the consultant will interact with the committee and management. The table on the following page provides an example of the information typically required by a request for proposal for an executive compensation consultant.

Topic Area and Description/Rationale	Information Typically Requested
Company Experience Allows the committee to gain an understanding of the consulting firm’s experience, philosophy, and resources	Brief overview of the firm Description of consultant’s background and experience as it relates to the work being requested Current list of clients and industry experience Description of the firm’s thought leadership Experience in designing annual and long-term incentive compensation programs
Consulting Team Provides the committee with information on the potential consulting team to understand the depth of experience of the team	For each member of the consulting team, provide: Name Anticipated role Years of experience List of current clients Biography
References Gives the company and committee an opportunity to learn about the consultant from previous clients	Provide three compensation committee chair references with the following information: Company for which the individual is the committee chair Contact information: company (current or former, if retired), contact name, address, email, and phone number Summary of scope of work Length of relationship
Potential Conflict of Interest Alerts the committee to any potential conflicts of interest prior to engaging a consultant	Highlight any potential conflicts of interest that could result from this engagement including the SEC factors Provide the firm’s conflict of interest policy
Pricing	Provide total anticipated consulting fees for completion of the work steps outlined in this request for proposal

General positive aspects in a consultant will include the following:

• Willingness to speak up when consultant is uncomfortable with decisions the committee is making or management is recommending
• Creativity in helping the committee consider solutions to difficult challenges
• Preparedness in advance of meetings sufficient to address issues efficiently and anticipate committee questions
• Flexibility to think “on the fly” as new issues surface during meetings
• Ability to engage different points of view while maintaining objectivity
• Proactive in keeping the committee chair aware of emerging issues between meetings
• Effectiveness in facilitating decision-making

Similar to the compensation committee chair, while part of the role of the consultant is to provide information and expertise, it is also to facilitate decision-making and bridge the gap between differing points of view. In order to fulfill this role well, the consultant needs to be trusted by the committee members and management, and should be able to relate to their concerns. Directors we spoke to indicated that one of the key challenges for a consultant is balancing the relationship between the committee and management. For example, Peter Haje said, “An open and candid relationship between the consultant and people in the company is critical, and it has not worked well when there was a poor relationship between management and the consultant.” Consultants who fail to recognize the importance of an effective working relationship with management may find that their relationship with management quickly becomes adversarial. On the other hand, if the consultant is perceived as being “too close” to management, the committee may come to question whether or not the consultant is providing objective, independent advice.

Much like management and directors, consultants will generally be most effective if they always keep in mind that their ultimate clients are the company’s shareholders, and that all three key parties (management, the board, and the consultants) should be acting in their interest. As part of the committee’s annual process, they should incorporate an evaluation of the effectiveness of the relationship with the consultant.