My Hay Group colleague Jeffrey Bacher writes:

While most of the attention on executive compensation has focused on CEOs, it really is the compensation committee of the board of directors that is responsible for the ultimate executive pay decisions. However, even the most responsible and diligent committee may make certain compensation decisions it later regrets, including ones that have been forgotten until exposed in a less than favorable light. Following several recent high profile severance payments, some compensation committee members were quoted as not really understanding the nuances of certain severance and change-in-control programs or the size of the cumulative awards.

All of which brings us to the topic of  ‘What the board should know.’

The governance scorecard

Even without the threat of being pilloried by Congress, the Securities and Exchange Commission (SEC), other regulatory agencies, the press, or a shareholder group, good governance calls for a compensation committee to take a regular, comprehensive look at the practices and programs that make up the organization’s executive compensation system. Clearly, the explanation and rationale now required as part of the CD&A in the annual proxy have encouraged compensation committees to be more aware of pay programs, but a full review may be more enlightening than expected.

One approach to the process is the ‘governance scorecard’—a series of rated elements that together focus on key issues in the current executive compensation landscape. Although the specific elements may differ by company, the general elements of a scorecard address some fundamental questions – read more of Hay Group‘s approach here:  Executive Edition