Embracing Transparency: The Compensation Committee’s Role in Good Governance

It’s not easy being a compensation committee at this time. The media have exposed some embarrassing and excessive compensation arrangements, and shareholders are calling for better alignment between compensation and building shareholder value. At the same time, real and significant forces are driving both executive and director compensation levels up. Chief among them is an increasing demand for, and, at least the perception of, a shrinking supply of, high-quality executives and board members. Along with this, tough new governance standards increase the accountability, risk and time commitment of board members.

In light of these conflicting forces, compensation committees are embracing transparency as never before. The right compensation plan design will ultimately be successful or disastrous based on two issues: the content of the design itself and how the organization discloses compensation.

This briefing shares leading-practice tools that corporations are using to design an effective compensation plan and to disclose their rationale.