The law firm of Pillsbury, Winthrop, Shaw, Pittman has published some guidance on the topic of Compensation Committee Governance. It makes interesting reading and is something CAEs might want to share within their company.
One of the concerns I have when it comes to the operation of the Compensation Committee is whether the committee's independent advisor (many use a specialist firm to advise on competitive compensation, how to devise the compensation program, etc) is really independent. While the new SEC Proxy rules require U.S.-listed firms to disclose the fees these firms get, that may not be sufficient to determine whether they are operating objectively for the board, or are swayed by fees paid by management for other services.
Another concern is whether the Compensation Committee is getting all the information necessary for it to perform its duties. Who provides the information? The same people whose compensation they are setting.
These are topics internal audit functions might want to consider as they plan audits of governance and/or risk management — one of the risks being the risk that inappropriate compensation structures might influence inappropriate decisions by executives.