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The Rationale for Increased HR Representation on Boards…

As the economy continues to languish, the compensation of CEOs and other senior executives remain under scrutiny. The most recent outcry surrounded the distribution of $165 million in bonuses or as they have been generously called, “retention payments” to AIG employees after the company received $182 billion in federal aid.

While the glaring outcry in these types of situations is towards the company and its senior management, the board of directors, of course, is directly implicated as well. Specifically the Compensation Committee on the Board, which has as its mandate the review and approval of CEO and executive officer compensation, is at the heart of much of these issues.

The Compensation Committee on any given Board is comprised of a cross-section of Board members, most of which have historically been CEOs and other line executives. The Compensation Committee rarely includes a true compensation expert and by that I mean one who spends their time thoroughly understanding compensation issues, strategies and structures as well as trends and innovations. In fact, according to a recent study of corporate directors, 78 percent said that they did not even have HR experts on their boards.

Unlike the Audit committee which has, (post Sarbox) somewhat stringent requirements about membership and particularly Chairmanship, the Compensation Committee currently has no such regulations. Perhaps it is time to review the structure of this committee, much like we did with the Audit committee after the Enron debacle. A compensation committee with true compensation and/or human resource expertise may an idea whose time has come.