Page 605 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

Chapter 10. The Board of Directors 591

will succeed, good corporate governance suggests that the board should begin identifying
successors as soon as the new CEO takes office.

Governance Checklist
The board should develop a corporate governance checklist to ensure it has put in place those
items that make up a good corporate citizen. A partial list of such items is shown in Table 10–2.

1. Has a code of responsibility been prepared identifying the rank order of importance of the
stakeholders, namely, employees, customers, community, suppliers, shareholders and executives?
2. Has a code of ethics affecting everyone in the organization been prepared and communicated?
Are the actions for noncompliance understood and enforced?
3. Has a code of conduct detailing how the code of responsibility and code of ethics are to be applied
been prepared and communicated? Alternatively, has this requirement been met in the respective codes?
4. Are the members of the respective board committees truly “disinterested” by definition of the various
regulatory agencies?
5. Has any director received (or is receiving) compensation from the company (other than director pay)?
If yes, is it clearly in the best interest of the shareholders as viewed by an outsider?
6. Has the board approved stock ownership requirements for itself and the proxy-named executives?
7. Has the board decided the respective roles on the compensation and nominating committees in
executive succession planning?
8. Are board committee duties in writing, approved by the board, and in the proxy statement?
9. Has the board determined responsibility for pay actions not reviewed by the compensation committee?
10. Has the board determined the market stage of the company and its industry?
11. Has the pay philosophy for the CEO and other proxy-named executives for each of the five pay
elements versus company performance been defined and communicated to the named individuals
and the compensation committee?
12. Has the board approved the business plans and performance measures for the next three to
five years?
13. Are the companies used for comparative pay purposes the same as in the proxy stock chart?
14. Has the board decided what performance measures, both financial and non-financial are to be used in
the CEO’s incentive pay package? Have threshold, target, and maximum payouts been approved
for threshold, target, and maximum performance attainments?
15. Will the measures be based on internal targets, peer performance or a combination of these?
16. Will the company maximize its tax deduction in conformance with Section 162(m) of the IRC by
giving the compensation committee complete and final responsibility for pay determination of the
proxy-named executive officers? If not, why not?
17. Has the board made a decision regarding expensing of stock options after considering current and
future balance of equity pay programs? What is the timetable for action?
18. Has the board carefully considered the impact of executive and director perquisites? And have they
been individually described with the cost of each reported in the proxy? Or has the company simply
complied with the SEC requirements?
19. Does the proxy statement detail employment agreements with the named executives, including change
of control benefits? If not, why?
20. Has the board determined the extent to which performance of its directors should be reviewed,
individually and/or collectively?

Table 10-2. Corporate governance checklist