What is a compensation committee?

A compensation committee is a group of people within a corporation charged with defining and reviewing executive compensation. Essentially, this means the compensation committee determines the salary and other forms of compensation that company executives are to receive. A compensation committee draws its authority from the corporation’s board of directors, by which it is appointed. Typically, compensation committees work both a managerial and a strategic function, are tasked not only with establishing and reviewing compensation packages but also with ensuring these fall within the broader set of corporate values and goals.

How many nonprofit organizations have a compensation committee?

Compensation committees are common primarily in large, well-staffed organizations. In other cases, their tasks are fulfilled by an executive committee or an especially assigned task force.

What does the compensation committee do?

Compensation committee reviews and decides on executives’ salaries and other means of compensation, such as incentives, bonuses, benefits, vacation pay, etc. Additionally, the compensation committee is responsible for ensuring compliance, evaluating executive-level performance, and maintaining uniform documentation of all their decisions and procedures.

How often does a compensation committee meet?

A compensation committee traditionally meets on a quarterly basis. Each quarter focuses on specific areas of the organization’s compensation planning. This way, a Q1 meeting centers on reviewing last year’s metrics, while a Q4 meeting decides on the benchmarks and policies for the upcoming year.

Is the compensation committee required?

Compensation committees are a must for corporations that went public and are generally recommended for all large organizations, including non-profits.

How are board members compensated?

Board members are compensated through cash and stock awards that include meeting attendance fees and retainers. The rate of compensation for board members is usually set and reviewed by the independent compensation committee.

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