"Suggested Guidelines for the Selection and Use of an Independent Compensation Consultant by Board Compensation Committees"

Fred Cook, Frederic W. Cook & Co., Inc.

1. As recommended by The Business Roundtable’s “Principles of Corporate Governance,” board compensation committees should have access to a separate compensation consultant to provide independent expert advice on executive compensation matters if they find it useful and appropriate
2. Management may participate in evaluating different compensation firms to provide this service, but the actual selection should be made by the committee chair with the approval of the full committee
3. The consultant selected should be experienced in executive compensation matters at the board level, have the full faith and confidence of the committee chair, and have a reputation for integrity and independence
4. It should be clear that the responsibility of the consultant is solely to the committee, and the management should work in cooperation with the consultant in fulfilling this responsibility
5. It is reasonable for the responsibilities of the consultant to the committee to be set forth in a written statement which is approved by the committee and communicated to the management
6. In addition, it may be useful for the committee chair to establish a dual reporting relationship with the staff executive designated as responsible for supporting the committee on executive compensation matters
   
   —The purpose of this dual reporting relationship is to provide additional perspective to the committee chair on the executive compensation program and proposals for change
7. The independent consultant serves at the pleasure of, and may only be discharged by, the committee chair
8. The performance of the consultant should be evaluated periodically by committee, with input from management, no less frequently then when there is a change in the committee chair
9. The consulting firm providing independence advice to the compensation committee may have other consulting relationships with management as long as such relationships are known by and acceptable to the committee chair
   
   —Statements for consulting services rendered, including other services to the company, should be submitted to management, but with a copy to the committee chair for his or her review or approval
10. The compensation consultant should expect to have a direct, one-on-one relationship with the committee chair, and vice versa
11. The committee chair shall direct the activities of the compensation consultant, including requesting special studies and advice
    
    —Other requests to the consultant for information and studies from committee members should come through the committee chair
12. The responsibilities of the committee’s consultant should include: (1) reviewing the agenda for upcoming committee meeting and materials to be distributed in advance; (2) reviewing major management proposals with the staff in advance of being finalized; (3) auditing and reviewing the work of other consultants particularly relating to competitive surveys; (4) attending at least one meeting a year with the committee and meeting in executive session to discuss issues specific to the company; and (5) reviewing committee minutes
13. Any reviews by the independent consultant of CEO pay competitiveness and recommendations for CEO compensation should come to the committee chair without prior review by the CEO
14. The responsibilities of the committee’s consultant include bringing to the committee chair’s attention any concerns or issues that the consultant may have about the company’s executive compensation program without being asked
15. It is reasonable for a newly appointed compensation consultant to the committee who has no prior experience with the company to conduct an independent review of the company’s executive compensation program in cooperation with management, including management interviews and competitive comparisons, to become familiar with the program and to identify issues and forward directions