Welcome to the Spotlight on Governance Web Conference Series: Director Compensation Issues November 10, 2009 How to Submit your Question Step 1: Type in your question here. Step 2: Click on the Send button.
Moderator Pat Mangan Director, Governance Education Speaker Monica Schmidt NRECA VP National Consulting Group Web Conference Highlights � Key issues and trends in director compensation. � Need for a clear and defensible process for setting director compensation. � Key governing policies that should be in place to address director compensation and performance expectation.
KEY ISSUES AND TRENDS IN DIRECTOR COMPENSATION Key Issues and Trends in Director Compensation � Increased time and effort required by directors. � Heightened Focus on Executive and Director Compensation in Tax-exempt Organizations. � Implementation of Guiding Principles and Best Practices in Director Compensation. BEST PRACTICES FOR DIRECTOR COMPENSATION
Best Practices for Director Compensation � The board should establish a process by which directors can determine the level and composition of their compensation in a deliberate and objective way. � Director compensation should be approached on an overall basis, rather than an array of separate elements. � All directors should be paid equally, with those serving as officers and/or committee chairs receiving extra compensation. � The board should dismantle existing benefit plans for directors. Best Practices for Director Compensation � Disclose fully in the proxy statement (IRS Form 990) the philosophy and process used to determine the director compensation and the value of all the elements of compensation. � The board should adopt a policy stating that the company should not hire a director or a director’s firm to provide professional or financial services to the company (cooperative). � The board should set a substantial target for stock ownership by each director and the time period during which the target is to be met. PROCESS FOR SETTING DIRECTOR COMPENSATION
Process for Setting Director Compensation � Discuss and document the objectives of providing compensation to directors. � Review the total compensation data of directors from other electric cooperatives. � Establish a peer group. � Review director compensation of local businesses. Process for Setting Director Compensation � Identify a relevant range and then decide where within that range you want to be. � Document the process. � Update the board compensation policy. � Update your compensation communication plan. How to Submit Your Question Step 1: Type in your question here. Step 2: Click on the Send button.
COMPENSATION PURPOSE & COMPONENTS What are Directors Being Paid to Do? � By-laws and policies. � Job description. � Outline of critical responsibilities. � Member and external relations. � Short- and long-range planning. � Major policies and business governing decisions. � CEO evaluation. (including hiring and firing) � Financial oversight. � Risk & Compliance oversight. Components of Cooperative Director Compensation Packages � Per diems for board, committee and special meetings. � Per diems for attending training or other industry-related meetings. � D&O insurance coverage. � Accidental death insurance. (while on Cooperative Business) � Directors’ deferred compensation plans. � Life and medical insurance. No longer � Directors’ retirement plans. considered a Best Practice. � “Retiree” Director medical insurance.
How to Submit Your Question Step 1: Type in your question here. Step 2: Click on the Send button. LEGAL AUTHORITY & DOCUMENTATION Legal Authority & Documentation � State statutory language limiting compensation. � Cooperative bylaws allowing compensation. � Board policy detailing the compensation package.
Policies � Director Compensation & Benefits. � Director Expenses. � Director Qualifications & Performance Expectations. Spotlight on Governance: Director Compensation Issues VP National Consulting Group National Rural Electric Cooperative Association 703-907-6070 Monica.schmidt@nreca.coop
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