| name | audit-compensation-committee-charter |
| language | en |
| description | Drafts a combined Audit and Compensation Committee charter for U.S. boards, tailored for public or private companies with listing-standard compliance, independence criteria, and SOX readiness. Triggers when the user needs a board committee charter, audit committee charter, compensation committee charter, or governance mandate for SEC/NYSE/NASDAQ compliance. |
| tags | ["agreement","corporate","drafting"] |
Audit & Compensation Committee Charter
Draft a single charter establishing Audit and Compensation Committees with compliant authority, composition, and duties.
Gather Inputs
- Company status (public / private / pre-IPO) and exchange (NYSE, NASDAQ, OTC, none).
- State of incorporation and governance statute constraints (e.g., DGCL 141(c) [VERIFY]).
- Existing charter, bylaws, committee charters, or board resolutions.
- Board size, desired committee size, and applicable independence standard.
- Auditor relationship, internal audit status, and financial reporting timeline.
- Executive compensation structure, equity plans, employment/severance agreements.
- Industry-specific regulatory overlays (financial services, healthcare, energy).
- Whistleblower/compliance channels and meeting cadence expectations.
Charter Sections
| Section | Content |
|---|
| Adoption & Authority | Board adoption statement, effective date, delegated authority; board retains ultimate fiduciary authority |
| Committee Structure | Separate Audit and Compensation Committees as standing committees |
| Membership & Independence | Minimum members, independence tests, appointment process, chair designation, term/rotation |
| Authority & Resources | Sole authority to retain advisors, funding, access to records/personnel, investigation authority |
| Meetings & Minutes | Quorum, voting, written consent limits, minutes, executive sessions |
| Responsibilities | Detailed duties per committee (see checklists below) |
| Reporting | Board reporting cadence, escalation triggers, required public reports |
| Evaluation & Review | Annual self-assessment, annual charter review, amendment process |
Audit Committee Responsibilities
- Oversee financial statement integrity (annual and quarterly)
- Review critical accounting policies, estimates, and alternative treatments
- Appoint, compensate, oversee, and terminate the independent auditor
- Pre-approve audit and permissible non-audit services; document chair delegation
- Receive auditor communications under PCAOB standards
- Evaluate auditor independence and quality controls annually
- Oversee internal audit charter, plan, budget, staffing, and IA head
- Oversee ICFR and remediation of deficiencies
- Establish whistleblower procedures for accounting/auditing concerns (SOX 301)
- Review related-party transactions and disclosure process
- Oversee compliance/legal risks material to financial statements
- Review ERM for financial and reporting risks
- Hold private sessions with independent auditor and internal audit annually
Compensation Committee Responsibilities
- Establish and annually review compensation philosophy
- Set CEO goals, evaluate performance, determine CEO pay in executive session
- Approve/ratify compensation for other executive officers
- Approve employment agreements, severance, CIC provisions, special compensation
- Administer equity plans; approve grants with timing and MNPI safeguards
- Assess compensation-related risk and mitigation (caps, clawbacks, holding periods)
- Oversee executive succession planning and leadership development
- Retain and evaluate independent compensation advisors; assess independence factors
- Meet with compensation consultant annually without management present
Public Company Add-Ons
| Topic | Requirement |
|---|
| Audit independence | SEC Rule 10A-3; no compensatory fees; no affiliates |
| Financial expert | At least one audit committee financial expert (Reg S-K); disclose |
| SOX authority | Sections 201, 206, 301, 806 (non-audit services, rotation, whistleblower) |
| Comp committee independence | NYSE/NASDAQ standards; consultant independence factors |
| Equity awards | Rule 16b-3 non-employee director approvals |
| Tax deductibility | IRC 162(m) outside director concepts if still applicable [VERIFY] |
| Proxy disclosures | Audit Committee Report; Comp Committee Report; CD&A review |
| Charter availability | Post on website; include in filings per exchange/SEC rules |
Template Skeleton
[Company Name] Board Committee Charter
Adopted: [Date]
I. Authority
Board adopts this Charter pursuant to [Bylaws/State Law]. Audit and Compensation Committees are standing committees. Board retains ultimate fiduciary authority.
II. Membership
A. Audit: [#] independent directors meeting [NYSE/NASDAQ/10A-3] standards; ≥1 financial expert.
B. Compensation: [#] independent directors meeting [NYSE/NASDAQ] standards; Rule 16b-3 compliance.
III. Meetings & Procedures
Quorum: majority. Actions: majority vote or unanimous written consent. Executive sessions required. Minutes maintained.
IV. Authority & Resources
Each committee may retain independent advisors; Company provides funding. Full access to records and personnel.
V. Audit Committee Responsibilities
[Tailored from checklist]
VI. Compensation Committee Responsibilities
[Tailored from checklist]
VII. Reporting
Chairs report to Board after each meeting; escalate material issues promptly.
VIII. Evaluation & Charter Review
Annual self-assessment and charter review; amendments require Board approval.
Pitfalls & Checks
- Default to the strictest independence standard when multiple exchanges apply.
- For private companies, remove public-company disclosures; substitute best-practice equivalents.
- Keep CEO absent from deliberations on their own compensation; document executive sessions.
- Confirm 409A compliance for severance and deferred compensation provisions.
- Keep obligations realistic and auditable — avoid over-promising committee activities.
- Align defined terms and cross-references with bylaws and board authority limits.
- Mark uncertain citations
[VERIFY] and resolve before final delivery.
