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Walking the Compensation Committee Tightrope

By Michael S. Sirkin
August 30, 2005

Being a director of a public company today requires a significant time commitment, independence, wisdom, judgment and a willingness to accept responsibility. While it has not always been the case, there are few directors today who are cavalier about their responsibilities and their potential liabilities. Indeed, today, when one is invited to join a Board the first question often relates to the extent of the directors' and officers' liability insurance. This question arises notwithstanding the fact that the director is confident of his or her own intent to responsibly fulfill his or her obligations, and is comfortable with the other directors and the company's senior management.

Many people believe that the most difficult job of a director is being a member of the Audit Committee. However, in many ways being a member of the Compensation Committee is more challenging and much more likely to result in the director becoming subject to public scrutiny and possibly criticism.

In the case of a member of the Audit Committee, there is little pulling in various directions. While the responsibility of Audit Committee members is significant and the issues sometimes complicated, everyone, in most cases, has the same goal – accurate compliance with the accounting and disclosure rules.

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