In search of a compensation committee chair.

• Position: COMMITTEE LEADERSHIP

Finding and selecting qualified outside directors is one of the most challenging and rewarding dimensions of building an effective compensation committee. In screening director candidates, some of the most important qualities to consider are also the simplest. At a minimum, the candidate should exhibit integrity and the ability to make thoughtful and sometimes difficult decisions.

An important component of the search process is how the candidate's experience and expertise is going to fit in with the rest of the compensation committee and the rest of the board, for that matter. The following criteria should be considered and weighed as appropriate:

* Availability

* Intelligence

* Reputation

* Communication Skills

* Experience

* Leverage (which denotes the ability of the director to use his or her professional affiliations to expand the company's relationships and to provide additional management expertise in areas identified as lacking on the board).

The weight placed on each of these factors should be guided by the company's needs, the strengths and shortcomings of other board members, arid the urgency of finding a new board member. To organize an evaluation of several director candidates, the company should rank the criteria and then rank the candidates. Here is an illustration of such an evaluation.

A middle-market public company is searching for an outside director to fill the role of the retiring chairman of the compensation committee. The company's current board is comprised of a majority of high-profile independent directors drawn from locally based, large public companies. The retiring director noted as one reason for her retirement from the board her lack of adequate time to devote to the business of the compensation committee.

A primary focus of the nominating committee, therefore, is that the new director has available time to serve as chairman of the compensation committee. In addition, the nominating committee is seeking a candidate ranking high in intelligence, communication skills, and professional reputation, but experience and leverage are not strong criteria in the search.

The candidates making the final cut are:

* Candidate A.' The new CEO of the retiring board member's company. This candidate comes from outside of the company's industry and outside of the local area. He is very well regarded professionally and gets high marks for relevant experience.

* Candidate B: A business school professor in her mid-40s. She has a...