Role of the Compensation Committee Recent trends in board

practices and director compensation

Rosina Dixon and Pearl MeyerNACD New York Chapter

March 12, 2003

The Compensation Committee

Also known as: The Compensation and

Organization Committee The Management Development

and Compensation Committee

Compensation CommitteeNew Requirements

Sarbanes-Oxely Legislation – does not address the Compensation Committee

NYSE Listing Requirements All members must be independent directors. The Committee must have a charter. The Committee must conduct an annual

performance evaluation. NASDAQ – All members must be

independent.

Compensation CommitteeBest Practices

Composition Responsibilities Sample Calendar Charter Outline

Compensation Committee - Composition At least 3 members and no more than

5 All independent Experience in general management,

law, finance and knowledge of the company should be represented

Recommended by the Nominating Committee and approved by the Board

Independence

Sarbanes – Oxely Legislation No compensation other that as a director No affiliation

New York SE Listing Standards Board must affirmatively determine no

material relationship 5-year cooling-off period for former

employees of the company or its auditor; members of interlocking compensation committees; family

Independence - continued NASDAQ

No significant shareholders No relatives of executives No former partners or employees of the auditor No executives of charities receiving >$200,000

or 5% of gross revenues 3-year cooling-off period for interlocking

compensation committees, recipients of >$60,000, employment/partnership in auditor, family

Compensation Committee Responsibilities Determine compensation policy Annual review of CEO’s goals and performance versus

goals CEO compensation including salary, incentive and

equity based awards Compensation for elected officers and directors Overall evaluation process and compensation structure

– oversight of management’s decisions Use of consultants Reports to Board Reports to Shareholders in the annual proxy statement Annual performance evaluation Charter

Compensation Committee Calendar First quarter

Review CEO and corporate performance versus goals Recommend annual incentive compensation Review CEO and corporate goals for the coming year

Second quarter Review salary structure and CEO salary Review long term incentive and equity based

compensation Annual report to shareholders

Third quarter Review performance of corporate benefit plans

Compensation Committee Calendar continued Fourth quarter

Review performance of committee Review compensation philosophy and charter Review estimates of annual incentive payouts

Ad Hoc Review compensation for new hires Significant changes to underlying

assumptions may lead to reconsideration of existing compensation

Charter Outline Purpose Membership Compensation philosophy Committee responsibilities and duties

Review goals and objectives relevant to CEO performance CEO compensation Elected officer and director compensation Overall compensation structure Report to Board and to shareholders Subcommittees Consultants Annual evaluation Charter

Director Compensation Director compensation should motivate

directors and align their interests to those of the shareholders

Timing of changes to director compensation Annual at time of board evaluation When recruiting new board members When level of board activity changes Other – e.g. change in value of option package