Guidelines offered on scope of action.

• Position: Determination of corporate executive pay

In May 1992 the NationalAssociation of Corporate Directors formed a "Blue Ribbon Commission" to study the controversial issues of determining corporate executive pay. The NACD, a Washington, D.C.-based educational organization, brought together 25 executives from industry, accounting, law, institutional investing, and other sectors to serve on the Commission. Earlier this year, the Commission released its extensive report, which the NACD says is intended to provide information, guidelines, and standards as to best practices for forming and using compensation committees, approving pay levels, linking pay to performance, and disclosing pay. Below is an excerpt from the report that recommends what the compensation committee's general scope of responsibilities should be.

The responsibilities of the compensation committees will vary from company to company and even within one company, as the needs of the company and the board change over time. For example, a start-up enterprise will have very different compensation plan requirements than an established business. Nonetheless, certain areas of general responsibility can be identified.

Oversight of management is a responsibility shared by all compensation committee members. The compensation committee is responsible for management development and performance appraisal, and often for CEO succession as well. In these respects, the committee is charged with evaluation of the CEO and, where appropriate, the heads of major divisions as well. It may also oversee director evaluation and compensation.

The compensation committee is, first of all, responsible for approving and overseeing the process and substance of a company's compensation policy. As mentioned, these may vary with changing circumstances, and the committee must review them regularly to make sure that they continue to be suitable.

If the board's pay oversight obligations are not assigned to the compensation committee, compensation matters should be discussed explicitly and evaluated at the board level.

If succession responsibility is specifically delegated elsewhere, the members of the compensation committee should work very closely with those discharging that responsibility.

In conjunction with the board's executive committee, or, if there is none, with the board as a whole, the compensation committee should put in writing a statement of...