Advice on joining the compensation committee.

• Position: BOARD COMMITTEES

Like anyone coming into a new role, there is a certain amount of education that a new committee member will have to take on. At the bare minimum, any new member of the committee should do a thorough review of the company's proxy statement to get a baseline understanding of how the company's compensation program works and how the company describes the compensation program to shareholders. Beyond the baseline understanding of compensation, new members (particularly new board members) need to make sure they have a clear understanding of the company's business and business strategy. Only with this foundational knowledge can a committee member begin to assess if the compensation programs that the company has are effective in supporting its business objectives.

Directors interviewed highlight the importance of understanding the "unwritten rules" of how the committee operates. Does the committee directly confront difficult issues with management in the room or wait until the executive session to address them? Does the committee chair encourage free form discussion among the members or does he limit discussion to the specific agenda item? Where do different committee members make the greatest contribution? Tony Coelho, chairman of the compensation committee at Warren Resources, emphasized that new directors "really need to listen and ask questions" as they work to understand the committee dynamics.

Two key points of contact can make the onboarding process run smoothly: the head of Human Resources (or a designee from the compensation function) and the compensation committee chair. It is critical that management assist in the on-boarding process by providing the new member with background material and context on the executive compensation programs and past committee meetings. Some companies will also include a meeting for the new member with the committee's external advisors.

Required reading/homework

When joining the committee, Human Resources should provide the new member with the following information:

1. Company's Proxy Statement: Reading the Compensation Discussion & Analysis provides the new member with an overview of the compensation program and a view to how the company describes the program to its shareholders

2. Overview of Executive Compensation Program: Management should have a summary document or documents that lay out the following:

   1. Compensation philosophy

   2. Executive salary structure

   3. Annual incentive design

   4. Long-term incentive...