Driving Company Value through the Compensation Committee

Attracting and retaining top talent are among the most challenging and critical CEO responsibilities.  In addition to cultivating a positive culture, compelling compensation and benefit programs provide the quantitative rationale for prospective employees to join and remain at a company. In a market with well-funded competitors, companies need to compete with terrific culture, a mission that motivates prospective employees, and yes, a competitive compensation package.

At the growth stage, our portfolio companies are rapidly scaling teams, adding experienced leadership, and rethinking organizational design. We want to provide our CEOs with effective compensation committees that can provide advice, guidance and oversight around compensation and benefit programs. Often, companies have not formally established committees by the time Catalyst invests – instituting a committee to review compensation (and particularly bonus plans) may feel like a luxury during the start-up phase. As companies scale to $8 million to $10 million of revenue and 50+ employees, they need to be able to recruit large numbers of employees and managers who weren’t part of the founding team. Those hires expect market salaries, understandable bonus plans, stock options and competitive benefit plans. The CEO benefits from putting some of the responsibility and oversight in the hands of a compensation committee that can tie the structure of the plans to long term value creation while grounding them in the realities of the competitive market.

A compensation committee is typically comprised of a subgroup of the board, and often the management team will make recommendations to the committee for review. Ideally, the committee will include independent board members who can provide neutral input. Below are a few suggested guidelines to optimize compensation committee efforts.