COMMITTEE CHARTER REVIEW AND MODIFICATION
In response to new stock exchange regulations, provisions of the Dodd-Frank Act and other events, the board of directors’ compensation committee for an oil and gas exploration and production company needed a review of the committee’s charter.
Committee members wanted to ensure that the charter covered all activities required of the committee. They also wanted to make sure that the charter outlined the duties and responsibilities of the compensation committee in such a way that it held them accountable for certain activities.
The company's goals:
- Ensure that the board of directors compensation committee charter conforms with all current regulations and laws
- Ensure that the charter is written in such a way that compensation committee members would be accountable for certain activities without being held liable for not performing activities in a certain year.
Frost HR Consulting contracted to review the compensation committee’s existing charter and the minutes of committee meetings to determine if the committee was performing all activities required by the charter. Further, Frost HR Consulting was to determine if there were required or advisable activities missing from the committee’s charter.
Frost HR Consulting's primary goals:
- Determine whether or not the board of directors’ compensation committee was performing all activities according to the committee’s existing charter
- Determine what additions or revisions were necessary to ensure the charter complied with current regulations and laws, and propose any necessary alterations to the charter
The project followed a step-by-step process:
- Consultants reviewed the compensation committee’s existing charter and minutes of its meetings.
- Consultants used a Frost HR Consulting-developed compensation committee checklist—constantly updated to reflect current legislation, regulations and best practices—to identify any deficiencies in the committee’s charter.
- Consultants made recommendations for additions and modifications to the committee’s charter based on the checklist and their accumulated knowledge of corporate governance.
- Consultants offered additional expertise to the committee by recommending the inclusion of clawback provisions or policies in preparation for Dodd-Frank requirements.
- Consultants assisted in writing a portion of the client’s proxy statement—the compensation discussion and analysis. Assistance included improving the section’s readability—removing legalese and jargon, and rewriting the text in clear, straightforward English—and adding more graphs and tables for enhanced understanding.
Recommendations made to the client and implemented by the compensation committee:
- Added compensation program risk assessment to the committee’s responsibilities
- Specified that the committee was responsible for establishing compensation philosophy and strategy
- Established qualifications for committee members
- Defined which executive committee would oversee compensation decisions
- Clarified that the compensation committee is responsible for all compensation requiring shareholder approval, including executive compensation, equity plans and more
- Established a review of the consultant for independence
- Enabled the committee to set up subcommittees
- Set up the responsibility for the committee to create equity award timing guidelines to minimize any perception of timing the market
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