The general counsel should anticipate questions from the board and its executive compensation committee from recent media coverage of executive compensation (especially in the nonprofit sector). This increased focus has concentrated on issues relating to reasonableness of compensation, and the use of compensation to reward particular organization and individual success—and to hold executives accountable for shortfalls in leadership or performance.
Media attention to nonprofit executive compensation is nothing new, and data contained in Form 990 filings should always be expected to “see the light of day.” The general counsel can address related concerns by advising her internal board/committee clients to focus on the following critical factors: (a) the comprehensive nature of the board’s executive compensation approval process and the strength of the position on the "Rebuttable Presumption"; (b) familiarity with all individual components of an executive’s compensation package; (c) the increasing responsibilities of corporate executives given growth in organizational size and complexity; (d) the exercise of independent business judgment by the compensation committee; and (e) the continuing ability of the health system to operate in a manner consistent with its charitable purposes.
The compensation committee may also seek guidance on how compensation is being used more broadly by sophisticated enterprises to drive behavior, incentivize conduct and penalize performance that falls short of board expectations. The general counsel may wish to team with the chief human resources officer on a board briefing that anticipates these questions.