What are the Compensation Committee Best Practices for Setting CEO Compensation?

Q: An ECFA member ministry has a compensation committee charged with the responsibility to recommend the CEO’s compensation and fringe benefits to the board each year. The committee is comprised of two non-staff board members and the ministry’s CFO. When the board receives the recommendation of the compensation committee, the CEO stays in the boardroom but does not participate in the vote. While the compensation committee records the details of the recommended compensation in their minutes, the board minutes do not reflect any details. How could the ministry improve their practices?

A: Here are three ways to improve this scenario:

  1.  While the CFO could provide information to the compensation committee, it would remove a possible conflict of interest if the CFO is removed as a committee member.
  2. It is a conflict of interest for the CEO to be in the boardroom when the compensation plan is considered—this is true even if the CEO does not vote on the compensation plan.
  3. The board-approved compensation plan should either be detailed in the board minutes or in separate minutes that are referenced in the board minutes.

This text is provided with the understanding that ECFA is not rendering legal, accounting, or other professional advice or service. Professional advice on specific issues should be sought from an accountant, lawyer, or other professional.

Navigation


Follow @ecfa