Nearly all companies’ proxy statements contain a reference to a compensation risk assessment, as required by Item 402(s). However, we sometimes wonder how many companies (and/or outside counsel) are actually conducting a compensation risk assessment each year.
Every company should review the compensation risk assessment issue at least annually (generally, but not necessarily, based on a report to the Compensation Committee by the legal and/or HR functions). However, if there are no major changes in the company’s compensation programs, there is no need to completely redo the risk assessment process. Instead, the legal and/or HR functions and outside counsel would review any new programs and changes made to the company’s existing compensation programs, with particular attention to the performance metrics and the mix of compensation, and decide whether further review and inquiry is necessary.
In many years (perhaps most), we would collectively reach the conclusion that no further review and inquiry is necessary. However, you should be taking the first step annually.