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.

Meeting Materials

Management and the committee’s compensation consultants work together to prepare meeting materials, depending on who holds primary responsibility for the particular agenda item. Regardless of who is developing the materials, whenever possible, the goal should be to review draft materials for the meeting with the compensation committee chair at least one and a half to two weeks prior to the committee meeting date. This timing is critical to ensure that these materials can be made available to committee members at least one week before the meeting. In the past, paper copies of committee materials were provided to committee members, but an emerging trend is to deliver the materials electronically to dedicated iPads provided to the directors. Electronic delivery allows the company to update materials without having to physically redistribute them and avoids encumbering committee members.

Given the busy schedules of committee members, providing them with adequate time to review materials in advance of committee meetings dramatically enhances the productivity of these meetings. Meetings can be conducted much more effectively if all members have reviewed the materials in advance. This allows for the limited time available at meetings to be dedicated to points of clarification and discussion, rather than reading through the written materials. In addition, Charlie Hinkaty shared that when committee members receive material late, it “gives the impression that management is springing it on them.”

Based on our interviews with committee members and our experience, meeting materials should summarize a great deal of information effectively. As Ed Campbell related to us, “Management and the advisors can’t just provide data to the committee — materials have to provide a conclusion.” Ideally, the committee should be provided with an executive summary that concisely lays out the issue, findings, conclusion, and rationale for the conclusion in one to two pages. The executive summary can be complemented by a longer report with supporting data, but the expectation should be that the long-form report will mostly be used as a pre-read and the meeting will focus on the executive summary.

Meeting Management

At the start of the committee meeting, the chair will typically call the meeting to order and begin by asking for approval of the minutes from the prior meeting. The chair is responsible for ensuring that the committee works through the agenda in a timely manner, that there is adequate discussion of each topic, and that there is an opportunity for committee members to gain clarity on the issues and voice their points of view. Lewis Campbell believes it is important to hear each member’s viewpoint and will proactively ask each member for his or her perspective to ensure an inclusive discussion. The agenda will typically involve some materials which are being provided to the committee for review and discussion while other materials will require a committee vote. Depending on the preferences of the chair, votes can be taken during the committee meeting or delayed until the end of the meeting when the committee meets in executive session without management present. Generally, when decisions are going to be made about issues where the management team has a direct economic stake, it is preferable to vote during the executive session so that members have an opportunity to discuss uninhibited by management.

The length of a committee meeting will typically vary with the agenda, and it also depends on the practices and approaches of each individual company. Some companies regularly address all required business in one-hour sessions. Other committees we have worked with typically have three-hour meetings. In most cases, the meeting length is a function of the working style of the committee. Some committees delve deep into the issues in each meeting, while others rely on a thorough pre-reading and count on management and the committee chair to highlight any issues that require longer discussion. In almost all cases, year-end meetings, where key compensation decisions for the year are made, typically run longer.

Executive Sessions

Executive sessions are a critical part of any committee meeting. They allow committee members the opportunity to meet without members of the management team present to discuss sensitive topics (e.g., CEO compensation) and to conduct critical votes. At the beginning of the executive session, members of the management team are typically excused from the room. The committee members and their external advisors remain in the room for the beginning of the executive session. The committee uses this part of the executive session as an opportunity to ask the advisors if they have any issues or concerns that they would like to raise relating to any of the topics that surfaced during the meeting. If any compensation decisions related to the CEO are up for discussion, they will receive input from external advisors at this point. Once the external advisors have had the opportunity to share their views, they are frequently asked to leave.

Once alone, committee members will take the opportunity to review any decisions made in the committee meeting, take votes on any decisions that were pushed back to the executive session to allow for additional discussion, and discuss any upcoming issues that the committee may want to add to its agenda going forward. The executive session is also the most likely time for members to discuss their own performance evaluation, the performance evaluation of the external advisors, and the possibility of changing their external advisors.

In many committee meetings, the executive session may not seem necessary due to the nature of the items under discussion. However, directors we spoke with believe that the executive session is critical. As Peter Haje said, “Always have executive sessions . . . if after a meeting, anything is bothering one of the members, they will share their views in the executive session.” Executive sessions can serve a very real function by allowing for uninhibited discussion, during which committee members can raise concerns. Below are several examples of issues that may come up in an executive session, but are difficult to discuss with management present:

• Concerns that management is trying to “force” the committee into making a hasty decision without providing adequate opportunity for the committee to discuss
• Concerns about the performance of the company or specific executives and potential implications for compensation
• Concerns that management may not be adequately sensitive to shareholder concerns
• Concerns about executive retention

In fact, some committees will even schedule an executive session without management present at the beginning of the meeting to allow committee members to air their concerns before reviewing issues with management. While not all committees use this approach, those that do find that it helps to ensure that the committee and management work through issues during the course of the meeting instead of having to wait until the end of the meeting to uncover members’ concerns.

From a governance perspective, having an executive session at every meeting helps to maintain a record that the committee members were provided with an opportunity to express their views independent of management at each meeting. It also helps to avoid raising concerns among management that “something is up” when committee members meet in executive session because such conferences are outside the norm.

Post-Meeting Process

Following each committee meeting, the committee chair will typically need to debrief with management (e.g., head of HR, corporate secretary, etc.) to ensure that any topics discussed or decisions made during the executive session are included in the meeting minutes. In addition, it provides an opportunity for management and the committee chair to ensure that they have a shared understanding of the items approved at the meeting and any next steps for additional work that were identified.