The Advisors' Blog

If governance practices were one-size-fits-all, our jobs would be boring and corporate decision-making would be a mess. But since we all still want to know what everyone else is doing, this memo from Compensation Advisory Partners canvasses practices in setting CEO and non-employee director compensation among the 110 largest companies in the S&P 500. Maybe you’ll see some good practices to adapt to your own clients and companies.

Here are four takeaways:

– 26% require the full board to approve CEO compensation, typically upon recommendation from the compensation committee, and 72% give final approval authority to the compensation committee itself, with the board informed through committee reporting and disclosure.

– A small fraction of companies (2% of CAP’s sample) utilizes a hybrid approach, where the full board, guided by the compensation committee’s recommendation, approves the CEO’s salary, while the compensation committee approves all other elements of pay.

– For non-employee director pay, companies are split between assigning this role to the compensation committee (57% of CAP’s sample) and assigning it to the nominating/governance committee (41%), though in both models, the full board almost always retains final approval (97% of CAP’s sample).

– One company in CAP’s sample (1%) has a combined compensation and nominating/governance committee that oversees director pay.

The memo delves into the pros & cons of various approaches to compensation oversight. It recommends that boards and compensation committees periodically revisit their structure and approach – and clearly communicate both the process and rationale for their practices.

You can find more resources about compensation committee roles in our “Compensation Committee Charters” Practice Area. If you aren’t already a member of this site, email info@ccrcorp.com to get access.

– Liz Dunshee