Committee Meeting Processes
While the actual committee meetings tend to be more informal, having effective processes in place is critical to the success of each meeting. Without adequate preparation prior to each meeting, things can easily go awry.
A best practice is for the compensation committee chair to review a draft agenda developed by human resources well in advance of the meeting, either by email or over a conference call. The objective should be to clearly lay out the answers to the following questions:
- What is scheduled to be covered in the meeting according to the annual committee calendar?
- Are there any additional topics that need to be discussed based on recent developments (e.g., terminations, new hires, regulatory developments, etc.)?
- What items are for review or informational purposes vs. require action by the committee?
- What will require formal committee action or approval?
- How much time should be allotted to each topic and for the committee meeting in total?
Sample Meeting Agenda
|
Time |
Item |
Agenda Item |
Committee Action |
|---|---|---|---|
|
9:00 AM |
1 |
Approve minutes of last compensation committee meeting |
Approve |
|
9:05 AM |
2 |
Review executive management changes |
Review |
|
9:15 AM |
3 |
Discuss executive compensation pay assessment |
Review |
|
9:45 AM |
4 |
Review recent trends in executive compensation |
Review |
|
10:15 AM |
5 |
Review and approve potential peer group changes |
Approve |
|
10:35 AM |
6 |
Review new hire and promotion equity grants below the CEO level |
Review |
|
10:45 AM |
7 |
Review annual status of employee benefits plan |
Review |
|
11:15 AM |
8 |
Executive session |
Review |
Committee Composition and Meeting Attendance
Determining the composition of the compensation committee is an important step toward achieving an effective committee. Compensation committees are typically composed of three to five board members with different, yet complementary, backgrounds and skills. The committee should also have representation from an active senior executive, an academic, an industry expert, etc., as appropriate. Some companies often include a current or recent member of the audit committee on the compensation committee to provide additional perspective on financial goals and results. If the compensation committee is composed of members with different backgrounds, it will allow for more comprehensive and fully vetted discussions.
Compensation committee meetings typically involve participants from management, external advisors, and all committee members. Management participants typically include one to two representatives from human resources (e.g., the head of HR and/or the head of compensation and benefits) and one to two representatives from legal (e.g., the general counsel and/or the corporate secretary). The CEO will also frequently attend committee meetings. Other members of management (e.g., CFO, chief risk officer, business unit leaders, etc.) may join a portion of the meeting to discuss specific topics (e.g., financial performance objectives, compensation risk review, or talent reviews) on an as-needed basis. On occasion, additional board members may be invited to attend compensation committee meetings, but generally this is not the case. Also, in financial services, it has become common to have at least one joint meeting annually between members of the compensation committee and the risk committee to discuss the risk implications of the company’s incentive compensation programs.
In addition, most committees will have external advisors present for all or a portion of the meeting. Typically, one or two representatives from the committee’s consultant to participate in each meeting. If the committee has engaged external legal counsel, they often participate in meetings as well, particularly where a need for their specific expertise is anticipated. Depending on the nature of the subject matter, the external advisors may take the lead in presenting material for portions of the committee meeting, but their primary role is to provide perspective on topics under discussion (e.g., market practices, effectiveness of varied approaches to meet specific objectives, or potential tax, legal, or accounting issues). In cases where management engages its own compensation consultant, management’s consultant may also be invited for a portion of the meeting to present to the committee, though it is less common for management’s consultant to participate in the executive session of the committee. Effective committees make it a practice to test ideas with their external advisors and proactively ensure that the committee has addressed any potential issues with the topic at hand.