Final answer:
The compensation committee is composed of independent, non-executive board directors who oversee executive pay and benefits. They evaluate the total compensation package and may consider adjustments or renegotiations based on organization policies and initial contracts.
Step-by-step explanation:
Who Comprises the Compensation Committee?
A compensation committee is generally made up of a group of directors from a company's board. These members are typically non-executive, independent directors to ensure objectivity and fairness. The primary function of the compensation committee is to set and review the compensation for the company's top executives, including the CEO. They assess factors such as performance, market rates, and legal requirements to determine appropriate pay and benefits. The committee is also responsible for administering executive benefit plans and may be involved in selecting executive officers and overseeing corporate governance issues related to executive compensation.
Responsibilities and Functions
The compensation committee actively evaluates the adequacy of the total compensation package offered to executives. This may include salary, bonuses, stock options, and other benefits. In some cases, such as when initial pay might be lower than the industry average, the compensation committee might design a package with attractive benefits to compensate for the lower salary. Additionally, the possibility of renegotiation of the terms of compensation 6-12 months from the start may be within the purview of the committee, depending on the organization's policies and the negotiation terms outlined in the executive contract.