Questions for Directors on Executive Compensation May Be Valuable for Risk and Audit Professionals

The Canadian Institute of Chartered Accountants (CICA) has a publication aimed at directors, especially members of the board’s compensation committee. Their “20 Questions Directors Should Ask about Executive Compensation” is one of several excellent resources in a series that you might want to check out.

The questions on executive compensation include a number that audit and risk professionals should consider. Do you know the answers to these at your organization? (The numbers are from the list of questions).

1. Does the compensation philosophy support the strategic direction of the organization?

2. Does the board understand and approve the level of risk inherent in the organization’s compensation philosophy?

3. Is the issue of executive compensation integrated into board discussions about risk?

5. How well do we understand the senior management team in terms of motivators, risk appetite and relationships?

6. Does our compensation disclosure adequately address the issues of primary concern to our shareholders?

7. How can we assess whether the organization’s pay practices are both defensible and competitive?

9. Do the performance measures and standards selected accurately capture the performance that pay should be linked to?

11. Does the use of mid and long-term incentives appropriately balance risk and reward, shareholder alignment and management engagement?

17. How effective has our executive compensation program been thus far in terms of motivating and paying for the desired performance?

18. What compensation-related risks have affected our organization or others in our industry?

20. What risks do we need to monitor on an ongoing basis?

Are executives and managers paid in a way that encourages behaviors desired by the organization, to achieve longer-term performance, strategies and goals?

Is an inappropriate compensation structure creating a toxic work environment, encouraging competition instead of teamwork and cooperation?

Posted on Sep 6, 2011 by Norman Marks

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  1. Executive compensation policy commensurate with the business risk, philosophy and culture. Not all the foreign public issuers have stock options as a way to attract the needed executive talent. Stock option is more prevalent among technology driven companies to attract the executive talent. Once again, it is not the money that is driving Steve Jobs to excel in his executive calibre. There is no easy audit technique here without looking at compensation among peer review & industry reports. Small companies tend to claim they pay little above market to attract needed talent and these companies end up having certain closed door meeting without the presence of internal auditor. Internal auditor is left out and it becomes a post audit and not pro-active risk management audit method of executive compensation. It is important that audit trail in the form of minutes of the executive compensation meetings must exist for audit.

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