CaseMark 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