Role of the Board Compensation Committee

Abstract

The role of the Board’s Compensation Committee is to approve the design of the pay programs for the top executive officers and to approve specific payments based on the plans and the company’s performance. Typically, the specific responsibilities of the compensation committee is specified within the company bylaws. This includes composition of the committee, statement of pay philosophy, implementation of plans approved by the board, identification of specific performance objectives, assessment of competitive pay practices, approval of employment contracts, role of external consultants, preparation of a Compensation Discussion and Analysis Report consistent with Securities and Exchange Commission requirements and filing a copy of the committee minutes to the board of directors and responding to their questions. Committee members have responsibility to put shareholder’s interest above their own (duty of loyalty), understanding the issues and alternatives (duty of care) and exercising prudent judgment (avoiding conflict of interest) and acting in good faith. These actions are required to meet the business judgment rule and avoid being held liable to their actions.