What is a Compensation Committee? (Overview, Roles, and Responsibilities)

A compensation committee plays a key role in ensuring the leaders of your organization receive a fair and reasonable amount of compensation, incentives, and other benefits. However, a compensation committee oversees more than just the number on a pay stub. Their key roles and responsibilities include the following:

Executive Compensation Oversight 

An organization’s managers and senior leaders are generally responsible for determining salaries and other forms of compensation for most of the company’s employees, but they cannot ethically set their own salaries. For this reason, responsibility for determining appropriate compensation for these leaders typically falls to a neutral compensation committee. This committee also determines other types of compensation for the same high-level leaders, such as bonuses, stock options, and benefits.

Performance Evaluation

Performance evaluation plays a key role in helping your team members understand what they are doing well and what areas they most need to improve, and your high-level leaders should not be exempt from this aspect of improving the entirety of your organization. However, it’s important to have your compensation committee or another neutral party conduct these evaluations to  avoid creating a conflict of interest. 

Incentive Plan Management 

Much like monetary compensation, other types of incentives that may ultimately motivate your team members should be decided fairly. This includes any extra incentives your high-level leaders may be eligible to receive. Incentive plans should be designed around achieving specific strategic goals and enhance long-term value for the company.

Succession Planning 

The compensation committee collaborates with the board to identify and develop potential successors for key executive positions. By cultivating a pipeline of capable successors, the compensation committee ensures that the company is equipped to navigate leadership transitions seamlessly, maintaining continuity in strategy execution and upholding stakeholder confidence. Think the opposite of what happened in HBO’s “Succession.” 

Compensation Disclosure and Governance

Many organizations choose to make compensation public to help maintain transparency among the people they serve. Your compensation committee can determine whether compensation disclosure is an appropriate choice for your organization and determine the details of how you will share this information.