The Compensation Committee Handbook, 4th Edition

CHAPTER 2 Selecting and Training Compensation Committee Members

For purposes of this chapter, it will be assumed that the company seeks new independent directors to round out the board and staff its core oversight committees, including the compensation committee. The chapter will first discuss the processes the nominating committee should follow to identify and attract qualified independent individuals who are best suited to serve as independent directors for their particular company. Later, the chapter will discuss the orientation and training of the individuals who are selected to fill that role.

As discussed in Chapter 1, independence is the core requirement for the compensation committee. However, independence is not the sole determinant of its success. Particularly now, as compensation programs are under public scrutiny and have evolved well beyond the historical reliance on “plain-vanilla” stock options and cash bonuses, it is imperative that compensation committee members have a facile understanding of the evolving landscape of executive pay and the expanding array of compensation vehicles available to shape desired results. They must be able to use this knowledge to devise programs that are straightforward, transparent, and effective. To this end, the committee should receive continuing training and employ the advice of independent experts and advisors.

The Role of the Nominating Committee

The New York Stock Exchange (NYSE) and the NASDAQ Stock Market (NASDAQ) recognize ...