The compensation committee recharged: what's being asked of the committee in the coming year challenges the traditional distinction between oversight and management. How should the members fulfill their expanded role?

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The compensation committee recharged: what's being asked of the committee in the coming year challenges the traditional distinction between oversight and management. How should the members fulfill their expanded role?(COMPENSATION COMMITTEE)

Publication: Directors & Boards
Publication Date: 01-JAN-08

Format: Online
Delivery: Immediate Online Access

Article Excerpt
COMPENSATION COMMITTEE members, like their colleagues on the audit committee, are facing higher levels of responsibility and increased scrutiny. The focus on the audit committee intensified with the scandals leading to the passage of the Sarbanes-Oxley Act in 2002. While that law did not the...

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...impose same sorts of requirements on compensation committees, it did address certain of the compensation practices associated with those scandals, such as loans, trading blackouts, and bonuses paid on the basis of incorrectly reported earnings. More generally, tonality and approach of SOX has been extended to other areas of governance.

An obvious parallel is the relationship between the compensation committee and the consultants who assist it in making its decisions. Auditors were required to be independent before the adoption of SOX, but the precise delineation was principally a matter determined by occasional SEC pronouncements and self-regulatory mandates. SOX specifically prohibited firms functioning as independent auditors from performing services that had traditionally been deemed acceptable. While there is no list of prohibited relationships that would debar a compensation consultant from performing any particular services, disclosures concerning the compensation committee and the compensation...

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