Board Oversight of Executive Pay: Compensation Committee Basics
In brief: Compensation committee members are tasked with designing compensation programs for senior management in a way that links pay with performance, attracts and retains executives, aligns executives’ goals with the company’s long-term strategy, and avoids unnecessary risk-taking. Designing such pay programs requires a firm understanding of compensation committees’ fiduciary duties, along with the basics of setting executive pay.
This Director Essentials guide—co-produced by Mercer and NACD—answers questions such as:
- How do you develop an executive compensation philosophy that supports the company’s business strategy?
- What are the basic components and the mix of pay elements that are needed to support the pay philosophy?
- How do we evaluate whether certain incentive plans are aligned with the company’s pay philosophy?
- What role does the compensation committee play in engaging with shareholders?
- How have the risks associated with compensation committee membership changed in recent years?
Most relevant audiences: Public company directors; chairs of the compensation and nominating and governance committees, compensation committee members, new directors