This article is the second in a series on efficient board committee practices (refer to the September 2010 issue of E-Briefings for the first article on the strategic alignment committee).

Executive compensation remains not only a prominent enforcement priority in the current regulatory environment, but also a sensitive political and employee relations issue given the post-recessionary economy. For these and other reasons, this is no time for the executive compensation committee to let down its guard. The committee would be well advised to address a series of important challenges in 2011. These include the following:

1. Independence of committee members. A weakness of many compensation committee structures is the inclusion of members who fail to satisfy the requisite standards of independence—whether as a matter of IRS rules (e.g., the rebuttable presumption of reasonableness safe harbor) or of public perception (e.g., appearing “beholden to” the chief executive). Failing to assure a completely independent committee threatens to compromise the decisions of that committee. Yet, it is an easily solvable problem, which starts by seeking the advice of legal counsel in selecting the committee members.