“Risky Business”: The Expanding Risk-Oversight Responsibility of Compensation Committees

In Brief

• In the United States, the past 15 years have witnessed a parade of corporate crises and scandals in which the conventional wisdom holds that poorly designed compensation incentives played a major contributing role.
• Accordingly, significant pressure has been placed on boards of directors and, in particular, compensation committees to ensure that incentive compensation features and overall plan design do not promote excessive short termism and risk-taking that could harm the long-term interests of the corporation and its shareholders.
• The result: independent directors serving on compensation committees are burdened with more responsibilities than ever before, and many compensation committees are burdened with risk-mitigation-based oversight responsibility for the design of incentive compensation not just at the executive officer level, but further down in their organizations.