With executive compensation so much in the news these days, I thought it might be a good idea to take a look at the rolls and responsibilities of the people trying to reign in this madness. Euphemistically called the Board of Director's Compensation Committee, this small group works quietly behind the scenes assembling pay packages for many of the most powerful and influential persons on the planet. Here's what they do.
(The following is a compilation of, and excerpts from, the by-laws of several major public companies.)
The Committee is responsible for reviewing and approving, on behalf of the Board of Directors, the amounts and types of compensation to be paid to the Company's executive officers and the non-employee directors; reviewing and approving, on behalf of the Board of Directors, all salary, bonus, perquisites and equity compensation to be paid to other Company employees; and administering the Company's stock-based compensation plans.
The Committee normally consists of a between two and five members of the Board of Directors. The members of are normally recommended by the Governance and Nominating Committee and are appointed by and serve at the discretion of the Board of Directors.
- Reviewing and approving the compensation policy for executive officers and directors of the Company, and other managers as directed by the Board.
- Reviewing and approving all forms of compensation to be provided to each executive officer and non-employee director of the Company.
- Acting as administrator of the Company's compensation plans, including granting awards to each executive officer and director, reviewing aggregate awards for other eligible individuals and determining the terms and conditions of such awards. The Committee also makes recommendations to the Board of Directors on amendments to the plans and changes in the number of shares available.
- Reviewing and approving the information to be included in the Company’s annual proxy statement and/or Annual Report.
- Reviewing and discussing the Company’s management succession plan at least annually, as well as the Company’s leadership development strategies and executive retention and diversity strategies.
- Evaluating the performance of the Chairman and the Chief Executive Officer (and such other executive officers as the Committee deems appropriate) in light of the Company's current business environment and the Company's strategic objectives.
- Reviewing and approving recommendations regarding the overall salary and bonus budget and guidelines for all Company employees.
- Evaluating the need for, and provisions of, employment contracts or severance arrangements for executive officers.
- Monitoring data on the Company's employee population (e.g., total compensation costs, compensation benchmark data, employee diversity, turnover levels, etc.).
In carrying out these responsibilities, the Committee has the power and authority to retain compensation consultants, outside counsel and other advisors and has the authority to approve the fees and other terms of these engagements.
The Committee is granted access to whatever resources are required to discharge its responsibilities.
MEETINGS & REPORTS:
The Committee usually meets at least four times a year, generally in conjunction with the regularly scheduled meetings of the Board of Directors. The Committee maintains written minutes of its meetings, which are filed with the minutes of the meetings of the Board of Directors.
In return for their service on the Board, Directors normally receive some or all of the following forms of compensation: Travel reimbursement, Cash Stipends, Stock Options, and Errors & Omissions Insurance. The specific amount varies based on company size, maturity, and industry. In large, publically-traded companies, the stock options alone can be worth millions.