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Executive compensation risk management: strategies for an evolving regulatory landscape.

Article Excerpt
Risk management oversight at the board level historically has focused on minimizing exposure to potential criminal or civil liability. Companies have developed corporate compliance programs consistent with the seven point framework for an effective compliance program articulated in the U.S. Sentencing Guidelines with an emphasis on prevention, detection and remediation of improper conduct and promotion of full and complete compliance with applicable disclosure laws. Although the audit committee is responsible for risk management policies and procedures under most compliance programs (and NYSE listing standards require the audit committee to have such authority), management retains broad discretion and authority to assess and manage exposure to business risks, including as it relates to incentive compensation for non-executive employees.

As Congress, the Treasury Department and the SEC act to stimulate the economy and address the unprecedented turmoil in the capital markets, executive compensation practices that are deemed to have encouraged excessive or inappropriate risk have been at the center of public debate. Federal regulators and lawmakers have responded by adopting or proposing a series of measures that target the assessment of compensation policies and packages as a significant component of financial risk management.

Five principles

The Treasury Department has identified five broad-based compensation principles that companies should consider to...

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