Looking to Benchmark Pay?
THE COMPENSATION COMMITTEE
A compensation committee's role and responsibilities are evolving to include not only compensation programs but also global C-Suite talent management and succession planning.
The compensation committee is a sub-set of the board of directors and reports to the board of directors. In the next sections, we will discuss the committee's role in terms of:
- evolving responsibilities
- its structure and membership
- how such a committee should operate
- the expected outcomes from its deliberations
Role and Responsibilities
The primary responsibility of the compensation committee is to design the compensation programs for C-suite executives in order to attract, motivate and retain highly effective leaders while ensuring alignment of their actions with the interests of shareholders. Compensation committee members have fiduciary responsibilities which require them to act in good faith, exercise prudent judgment, and act in the best interests of the various stakeholders.
The Compensation Committee Charter is a document posted on company websites and explains the mission statement, summarizing the committee's purpose, primary objectives, and goals. The charter should describe the committee hierarchy and the process by which new members are added and promoted to leadership positions. Lastly, the charter should note when meetings will be held and what important topics should be discussed at every meeting.
The role of Compensation Committees has evolved to have more corporate governance and oversight responsibilities than before. Why are effective Compensation Committees so important?
- Compensation and Labor Costs are the single largest expense for most organizations across all industry sectors.
- Executive Compensation design and programs have a trickle-down effect on the rest of the HR Total Rewards philosophy and programs.
- C-suite executives have the most direct impact on the management and financial performance of the organization.
- There must be a balance between short-term and long-term risk management.