Executive Compensation and the Role of the Compensation Committee

Committee Support

Compensation committees usually have support from:

• Human Resources (within the organization)
• The CEO's office (within the organization)
• A consultant (usually from the outside)

Human Resources

The Human Resources Department can be a source of information about the current strategy and practice of compensation within the organization. It may also offer expertise in developing an executive compensation package, depending on how the department is organized and staffed. The results of the committee's deliberations will eventually become a part of the overall compensation scheme of the organization, and the two should be as consistent as possible.

CEO's office

The CEO's office can be the source for administrative aid to the committee. There are meeting minutes to be taken, agendas to be made up and distributed, and meetings to be called. At the conclusion of a cycle, there are reports to be written, distributed, and sent to the board as a whole.

Consultants

The committee requires both information and expert advice from sources that aren't ordinarily available within the organization. Advice from within the organization might not have the independence that the committee requires in its deliberations. Compensation consultants usually provide this expertise. Compensation consultant independence means being free from any conflict of interest such that there are no other material consulting services on behalf of the organization.

The expert adviser MUST be independent of pressure from inside the organization.

Value-added services that should be expected from expert advisors:

1. Information and not just data: assimilate and synthesize complex data into simple, actionable advice for a Board audience.
2. Performance alignment and not just market positioning: create performance alignment rather than focusing on achieving a particular market competitive pay positioning.
3. Proactive recommendations and not just reactive advice: identify relevant issues and trends early by being at the forefront of emerging practices.
4. Perspective and not just a presentation of alternatives: relevant insight on the best path to take.