casemark/board-committee-charter

Board Committee Charter — Audit & Compensation

Drafts Audit and Compensation Committee charters tailored to the company's regulatory posture, exchange listing, and governance needs.

Prerequisites

Gather before drafting:

• Company profile: public/private, exchange (NYSE/NASDAQ), state of incorporation, industry
• Governance docs: articles, bylaws, existing charters, board resolutions
• Context: ownership structure, international operations, pending transactions (IPO, M&A)
• Special circumstances: restatements, control deficiencies, regulatory investigations

Charter Sections

Draft a single document with these sections:

I. Preamble & Authority

• Board adoption statement per bylaws and applicable law
• Committees exercise delegated authority; fiduciary duty remains with full board

II. Purpose

| Committee | Core Purpose | |---|---| | Audit | Oversight of financial integrity, internal controls, audit functions, compliance, and financial/operational risk | | Compensation | Align executive compensation with shareholder interests, strategic objectives, retention, and risk balance |

III. Composition

Audit Committee:

| Requirement | Standard | |---|---| | Size | Min 3 (4–5 for complex orgs) | | Independence | All independent per listing standards + SEC Rule 10A-3 | | Financial expert | At least 1 per SEC definition | | Prohibited | No compensatory fees beyond director pay; no affiliate relationships |

Compensation Committee:

| Requirement | Standard | |---|---| | Independence | All independent per listing rules | | SEC Rule 16b-3 | All qualify as non-employee directors | | IRC §162(m) | Outside director status if preserving deductibility |

Appointment: nominated annually by Governance Committee or full board. Define term lengths. Chair sets agenda, liaises with board.

IV. Authority & Resources

Audit Committee:

• Appoint, compensate, oversee, terminate independent auditor (reports to committee, not management)
• Pre-approve all audit and permitted non-audit services
• Retain independent counsel/accountants/investigators without board approval
• Unrestricted access to personnel, records, and systems
• Authority to investigate and compel management cooperation

Compensation Committee:

• Set CEO goals, evaluate performance, determine CEO compensation
• Approve executive officer compensation (may delegate sub-CEO to CEO with ratification)
• Approve employment agreements, severance, change-in-control provisions
• Retain compensation consultants with sole selection/termination authority
• Assess consultant independence per listing standard factors
• Administer equity plans, approve grants, interpret provisions

V. Meeting Procedures

| Element | Audit | Compensation | |---|---|---| | Frequency | 4×/year (quarterly) | 2×/year minimum | | Quorum | Majority | Majority | | Action | Majority vote or unanimous written consent | Same |

Executive sessions:

• Audit: exclude management; private sessions with independent auditor, internal auditor, CFO annually
• Compensation: no officers present during deliberations on their own pay; annual session with consultant without management

VI. Audit Responsibilities

• Financial reporting: review annual/quarterly statements before release; evaluate accounting principles, estimates, disclosure completeness; review auditor communications and management representation letters
• Auditor oversight: annual evaluation of qualifications, performance, independence; evaluate lead partner; consider rotation
• Internal audit: approve charter, plan, budget, staffing; approve/replace internal audit head; review reports and corrective actions
• Compliance & risk: oversee compliance programs; establish whistleblower procedures per SOX §806; review related party transactions; oversee financial risk management

VII. Compensation Responsibilities

• Philosophy: annually review objectives, element weighting, fixed/variable balance, equity/cash mix, pay-performance relationship
• CEO pay: set goals → evaluate → determine compensation in executive session without CEO → report to board
• Executive pay: approve material changes (salary, bonus, LTI, severance); ensure §409A compliance; include restrictive covenants
• Equity: oversee plan design; approve grants with timing policies preventing MNPI abuse; monitor burn rate and dilution
• Risk: annual assessment of whether pay policies create adverse risk; ensure mitigants (clawbacks, ownership requirements, caps)
• Succession: oversee CEO and key executive succession planning annually
• Proxy disclosure (public): review CD&A, compensation tables, Committee Report

VIII. Reporting & Escalation

Committees report to board after each meeting. Escalate immediately:

• Audit: material weaknesses, fraud, regulatory violations, whistleblower matters
• Compensation: significant financial obligations, conflicts, reputational risks

IX. Self-Assessment

Annual self-evaluation and charter review. Report results and recommendations to full board.

Pitfalls & Checks

• Public vs. private: SOX and listing rules don't apply to private companies directly — use as best-practice benchmarks and scale accordingly
• Verify regulations: SOX §§201, 206, 301, 806; SEC Rule 10A-3; Rule 16b-3; IRC §162(m) [verify post-TCJA applicability]; IRC §409A
• Exchange differences: NYSE and NASDAQ independence definitions differ — confirm applicable standard; use more stringent if dual-listed
• Industry overlays: expand responsibilities for regulated industries (banking, healthcare, energy)
• State law: confirm delegation authority under state of incorporation (e.g., DGCL §141(c) for Delaware)
• Cross-reference: verify alignment with bylaws, articles, and other governance policies before finalizing
• Drafting tone: clear legal language accessible to non-specialist directors; active voice; consistent defined terms