PM&P On Point: 2011 Compensation Risk Assessment Survey

Expanded SEC proxy disclosure rules adopted in 2009 require that companies discuss any compensation programs that might be “reasonably likely to have a material adverse effect on the company.” However, the regulators provided little in the way of guidance regarding exactly what constitutes material risk in a pay program, or how companies are expected to evaluate and mitigate those risks.

Pearl Meyer & Partners’ PM&P On Point: Compensation Risk Assessment Survey, conducted in December 2010 and January 2011, provides insight to how companies are approaching this new mandate and the impact on their compensation practices. It includes the responses of 186 participants representing organizations of all sizes and major industry sectors.

Among the issues addressed in the report:  

• Whether companies have conducted a risk-based assessment
• How frequently they plan to formally assess compensation risk going forward
• Whether the assessment covers all compensation programs, or is limited to executive pay plans 
• Who within or outside the organization leads and participates in the risk assessment process
• What program changes, if any, have been made as a result of findings from the risk assessment or in light of disclosure requirements