05 May Maximizing the Effectiveness of Compensation Committees at Private Companies
Private companies are increasingly adopting public company governance practices such as using formal Compensation Committees consisting of internal or external Board members. Unlike publicly traded companies where a Compensation Committee is a requirement, private companies establish formal Compensation Committees for reasons such as the desire for:
- A more defined and objective process. This is welcome in delicate situations such as where there are conflicting shareholder interests that need to be aligned, or there is a perception that management has undue influence on setting their own pay levels.
- Additional Board-level attention and/or external compensation expertise. This may be necessary when companies establish new key executive compensation plans or need to have one point of contact to negotiate employment contracts with key executives.
But what are the ways to optimize the outcomes from well-managed Compensation Committees?