As we have noted in our previous post, a special committee appointed to lead a company’s response to an activist can expect to receive a greater degree of public scrutiny, but may take comfort from the fact that the legal standard against which its members will be judged will not change. While that should provide some comfort to committee members, the job of serving on a committee can nevertheless be time-consuming and challenging. However, given the extra time and effort needed to properly discharge the committee’s mandate, it is customary and appropriate to compensate committee members for their efforts above and beyond their regular compensation as directors.
Compensation arrangements generally involve one or both of the following and are typically paid in cash:
- a flat retainer fee (which could be a monthly or quarterly fee), often with the committee chair receiving a greater amount to account for the additional responsibilities of the chair; and/or
- a per meeting fee, which may be lower when attending by phone given that there is less disruption or travel time involved to attend the meeting (the quantum is typically based on the attendance fee for regular board meetings). Where the work of the committee turns out to be more intensive than originally anticipated, the meeting fee can serve to balance a retainer fee that in hindsight could be viewed as providing insufficient compensation.
Committee members should also be reimbursed their reasonable expenses, often consistent with the board’s existing expense reimbursement policy.
There are no specific rules governing the quantum of compensation in these circumstances, though some guiding principles may be helpful:
- The board should consider the organization’s general board compensation philosophy and practices.
- Success fees, which may compromise the committee’s independence, should generally be avoided.
- The quantum of compensation should not be excessive in relation to the fees paid to board members in connection with their regular board duties or, for that matter, the compensation paid to management.
- As a further reference point, the board also may look to the compensation paid to members of the audit committee, a committee whose independence is legislatively mandated.
This is the fifth in a series of recurring blogs on special committees focused specifically on contested transactions, including proxy contests and hostile bids. For more information on special committees, please refer to 20 Questions Directors Should Ask About Special Committees, a publication co-authored by Fasken Partners William K. Orr and Aaron J. Atkinson for CPA Canada.