Page 608 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

594 The Complete Guide to Executive Compensation

retirement within their own firms, especially if shrinking inside-board sizes preclude being
elected while working.
However, from the viewpoint of knowledge, the best candidate is an executive compensa-
tion consultant or similar individual in the employ of another company. Either of these
individuals would be a candidate where eligibility for the committee required simply that
candidates be “disinterested parties” and not necessarily members of the board of directors.
Where a company is using several consultants, it may find the industry expert more appealing,
not only to bring another dimension but also to avoid potential conflict of interest charges.
Because experience is important, it may be unwise to rotate members of the committee
too early. Perhaps rotation of one person every several years would allow the committee to
retain the needed expertise.

Committee Chair. The chair may either be elected by members of the committee or by the
board, based on a recommendation from the governance committee (which also recommends
who serves on the committee).
The responsibility of the chair is to prepare the agenda for each meeting (ensuring
members have meeting materials in sufficient time to review prior to the meeting), preside at
each meeting, and ensure committee actions are reported in meeting minutes and are later
implemented.
Before preparing a monthly meeting agenda, the chair should establish a key event
timetable similar to the one in Table 10–4 for the year. In the example in the table, salary actions
are effected on a common date (April 1) and approved in March rather than distributed
throughout the year; short-term and long-term incentive awards are also reviewed in March.
However, benefit and perquisite actions are effected the first of the year and therefore approved
in November and December. As the year progresses, the timetable is adjusted to reflect the
addition of other committee or management requests.
The committee’s task is not an easy one; it must balance financial expectations of
management with degree of difficulty in goal attainment and cost to shareholders. In many
instances, simply quantifying corporate strategy and goals in a manner that will allow struc-
turing a short- or long-term incentive plan is a challenge in itself. Add to this the need to
relate to pay levels of officers of other companies after adjusting for profit performance, and
it is easy to see that the responsibility is more easily defined than accomplished.
A logical requirement is an annual report reflecting pay levels for a specified list of
companies. This could be prepared either by an internal staff or by an outside consultant.
Using this data, the committee could ascertain what level of adjustment is appropriate for the
affected group. This in turn might be reviewed with an outside consultant for reasonableness.
Committee Secretary. Rather than appoint one of the committee members as secretary, it
might be appropriate to select the head of human resources (since it is expected that person
will be in attendance at virtually every meeting anyway). An alternative would be to appoint
someone from the general counsel’s staff, such as the attorney responsible for SEC matters.
In addition to ensuring the meeting minutes are prepared and distributed in a timely
manner, the secretary should see to other requests by the chair and committee members.
This ranges from ensuring a meeting place with appropriate support materials, beverages,
and food to compiling and distributing agenda materials in accordance with the chair’s
request. By ensuring these are distributed in advance, committee members have an opportu-
nity to call in and ask questions prior to the meeting, thereby reserving meeting time for
discussion rather than fact finding.