Welcome to The Compensation Committee Adviser

Fred Whittlesey
Compensation Venture Group, Inc.

The recent article "Shaping Strategy from the Boardroom" in the McKinsey Quarterly begins by stating "As companies turn their attention from compliance to growth and innovation, boards must focus on strategy." The article goes on to say that since boards of directors have now "come to terms with the new governance rules...it's time to move on." While that may apply to the overall activities of the Board, there are areas of Board responsibility where this is not yet so - like those of the compensation committee.

It is critical for Compensation Committees to focus on strategy and avoid letting the compliance tail wag the design dog. Most Compensation Committees, having now gotten through FAS123R accounting, option valuation, and most of 409A deferred compensation rule changes are again besieged with the option backdating scandal, new SEC disclosure rules published last week, and continuing changes in investors' criteria. Just about the time they digest the new disclosure rules they'll be seeing Institutional Shareholder Services' 2007 Policy Statement.

I agree with the McKinsey authors' statement that "too many (boards) simply lack directors who have the industry expertise to participate effectively in shaping strategy - much less to reshape it on the fly as the business climate changes." When we view "industry" as the "compensation industry” we find this statement applies to compensation committees as well. But in the directors' defense, no one - consultants, accountants, lawyers - has much "experience" with these new rules. What is needed is a strong commitment by compensation committee members, and their advisers, to devote the time and attention needed to communicate, understand, assimilate, and act upon the continuing changes in the executive compensation environment. This requires a multi-disciplinary approach, not an accounting viewpoint from the auditor, then a tax viewpoint from the CPA followed by a legal viewpoint from the lawyers.

The Compensation Committee Adviser is a resource for clients, colleagues, and interested parties to maintain a day-to-day awareness of the changing landscape in executive compensation in the hope that we can indeed balance the attention to compliance with sound strategy, good design, and effective execution. Like our firm’s compensation consulting practice, it emphasizes a multi-disciplinary approach to decision-making in the complex executive compensation environment. I hope this resource, plus additional education opportunities you will find listed on our website, provide valuable support for the difficult job of compensation committee membership in these turbulent times.