AMERICAN CANCER SOCIETY, INC. (THE “SOCIETY”)
COMPENSATION COMMITTEE CHARTER
I. Purpose of Committee
The Compensation Committee (the “Committee”) is established to ensure the Society’s Board of Directors (the “Board”) determines the adequacy and reasonableness of the total compensation paid to the Chief Executive Officer (“CEO”) and the total compensation ranges for other employees who are Disqualified Persons within the meaning of section 4958 of the Internal Revenue Code (“Disqualified Executives”). Consistent with the Society’s Executive Compensation Philosophy set forth as EXHIBIT A, total compensation includes, but is not limited to, salary, fees, incentives, bonuses, retention payments, severance payments and all forms of deferred compensation, whether vested or unvested, and all benefits whether or not included as income for tax purposes (e.g. medical, dental, life insurance, disability benefits). In this context, the term “Disqualified Executive” includes:
1. any individual who is, or within the prior five years has been, in a position to exercise substantial influence over the affairs of the Society;
2. any individual who is the spouse, brother or sister (whether whole or half blood), ancestor, child (whether natural or adopted), grandchild, great-grandchild, or the spouse of a brother or sister, child, grandchild, or great-grandchild, of an individual referenced in subparagraph 1; and
3. any organization in which an individual described in subparagraph 1 or 2 has a 35% ownership or control interest.
II. Committee Membership
The Committee is chaired by a Board member appointed by the Chair of the Board. In addition to the chair, the Committee is composed of four members, including the Chair of the Board, all of whom must be “independent voting members” of the Board without a “conflict of interest”, as such terms are defined in the attached EXHIBIT B. If the Committee chair is also the Chair of the Board, the Committee is composed of five members. Committee members should be selected on the basis of their subject matter expertise and experience. Any question regarding a Committee member’s independence, conflict of interest or appearance of a conflict of interest will be reviewed by the Board for final resolution. Committee membership is appointed by the Chair of the Board and approved by the Board. Committee members serve one-year terms beginning January 1st and ending December 31st of that same year or until the new Committee is appointed by the Chair of the Board.
III. Committee Authority and Responsibilities
The Committee will:
1. (a) Conduct an annual review of the CEO’s performance and assure the reasonableness of his or her total compensation in relation to the marketplace; (b) solicit Board input regarding the CEO’s performance; (c) decide on any changes in the CEO’s total compensation; (d) decide on any changes in the CEO’s employment agreement, severance and/or retention agreement, if any are in effect; (e) review and comment on the CEO’s annual performance goals; (f) establish the CEO’s annual Incentive Plan goals, determine the measures and levels of performance for each goal and determine what Incentive Plan Award, if any, is payable each year;
2. Review, and as appropriate approve Management’s designation of the Society’s other Disqualified Executives;
3. Review, approve and assure the reasonableness of total compensation ranges, and the terms of any employment agreements, severance and/or retention agreements of all Disqualified Executives (in addition to the CEO). The CEO is empowered to set the total compensation and the terms of any severance/and or retention agreements for all other Disqualified Executives within the ranges determined by the Committee. Approve participation in and payout potential for any Disqualified Executive incentive plan. The CEO will either certify to the Committee that the total compensation of each Disqualified Executive is within the range approved by the Committee, or obtain the prior approval of the Committee to provide compensation to a Disqualified Executive that is outside of the approved range. The Committee must review and approve the severance and/or retention agreements for any Disqualified Executive if outside the range previously approved by the Committee;
4. With respect to Disqualified Executives (including the CEO), work with the Board’s independent compensation consultant to gather and review in advance appropriate market comparability data on the amount and form of compensation paid for comparable executive positions by other comparable employers, including those organizations with which the Society may be competing for executive talent, and to assure that the comparability data so gathered and reviewed meets the standard for “appropriate data as to comparability” to qualify for the rebuttable presumption of reasonableness under Internal Revenue Code Section 4958;
5. Before the later of (i) its next meeting or (ii) sixty (60) days after making its determination of reasonableness with respect to the total compensation of all Disqualified Executives (including the CEO) document in a written report: (a) the terms that were approved and the date approved; (b) the members of the Committee present during the discussion and those who voted in favor and those who dissented or abstained; (c) the comparability data obtained and relied upon by the Committee and how the data were obtained; and (d) any actions taken with respect to the determination by anyone who is otherwise a member of the Committee but who had a conflict of interest. The report must be approved by the Committee as reasonably accurate and complete within a reasonable time thereafter and reported to the Board for its consideration;
6. Review and act on reports of conflicts of interest from the Board or the Audit Committee of the Board as such reports relate to the compensation of Disqualified Executives and/or Committee members;
7. Oversee the CEO succession process, working with the CEO to assure an orderly succession, whether via an external search or the identification and development of leaders within the organization. Assure that there are designated CEO successors prepared to undertake the CEO’s responsibilities on an interim basis should that become necessary, and annually report to the Board with respect to the foregoing;
8. Determine whether all of the Society’s compensation and benefit plans, including but not limited to the Society’s Retirement Plans, Medical and Dental, Retiree Medical and Retiree Life Insurance, and other such plans are appropriate to market for the skills employed and, if not, make appropriate recommendations to the Board;
9. At least annually provide a report with respect to the foregoing to the Board for its consideration. If the Board declines to approve any part of the Committee’s report, the Committee will undertake further review of the part in question on the basis of the comments from the Board and submit a revised or restated report to the Board; and
10. Review the Compensation Committee Charter and Executive Compensation Philosophy for adequacy annually and recommend any changes to the Governance Committee for approval by the Board; and
11. Accomplish additional tasks as charged by the Chair of the Board.
IV. Resources and Authority of the Committee
The Committee will have the resources and authority it deems appropriate to discharge its duties and responsibilities, including the sole authority to select, retain, terminate, and approve the fees and other retention terms of outside legal counsel, or an executive compensation consulting firm with broad experience in executive compensation and benefit matters at large tax-exempt organizations, without seeking approval of the Board or management, any such engagement to be reported to the Board. In carrying out its responsibilities, the Committee may rely upon advice of legal counsel and of qualified legal, accounting, compensation, and valuation experts. Legal counsel may be outside or in-house. All outside professional advisors selected by the Committee will have primary and direct reporting relationship with and accountability to the Committee.
V. Committee Meetings
The Committee will meet at least annually and as often as its chair or a majority of its members deems necessary or appropriate, either in person, telephonically or electronically, and at such times, places and manner as its chair and chair’s staff may determine. Deliverables, budget, and alternative meeting methods should be included in the decision making process. The chair and chair’s staff will develop an agenda in advance of each meeting and communicate meeting details to Committee members in a timely fashion.
As necessary, the Committee will meet in a joint session with other committees regarding items of concern to both committees.
VI. Committee Reports
The Committee will produce a written report at the conclusion of each meeting, which will include an attendance record, a copy of the agenda and a full report of Committee discussions with documented recommendations and decisions. These reports will be completed no more than three weeks following the meeting and forwarded to the Committee membership and the Office of Strategic Governance for proper filing.
VII. Committee Evaluation
The Committee will conduct periodic performance evaluations to review the performance of the Committee in relation to the requirements of this Charter and such other matters as the Committee deems appropriate.
Executive Compensation Philosophy
This document is a declaration of the American Cancer Society’s intent, as a nationwide organization, with respect to the principles, goals, and structure of executive compensation programs for Disqualified Executives. It serves as the foundation for the specific components of such programs for Disqualified Executives.
The American Cancer Society Board of Directors (the “Board”) is responsible for the administration of the Society’s compensation program. The Board assigns this responsibility to its Compensation Committee, which is governed by the Compensation Committee Charter.
The Compensation Committee is primarily responsible 1) to assure the reasonableness of executive compensation levels of disqualified executives, 2) to enact policies that balance the need for appropriate safeguards with the need to assure an effective program that enables the Society to retain, attract, and reward executives, and 3) to set the Chief Executive Officer’s (“CEO”) compensation.
In order to assure a functioning and effective program, the Board delegates the authority to the CEO to determine total compensation for other disqualified executives so long as the compensation conforms to the policies established by the Compensation Committee.
Overview and Guiding Principles
The American Cancer Society (the “Society”) is a nationwide, community-based, voluntary health organization. It requires top executive talent with a wide range of skills, education, experience, and leadership qualities. The Society recognizes the need to pay competitively in all forms to assure the retention and attraction of executive talent. The Society fundamentally believes that executive compensation should be market-based and performance-based. It also believes in the principle of a fair value exchange, that is, the organization’s interest must be considered and must be proportional to the monetary value conveyed to executives.
The Society views the market (for the purpose of setting executive compensation policy) as other nonprofit, healthcare, and general industry sectors which are the primary industries that provide executive talent to the Corporate Center. The nonprofit and healthcare industry sectors include a combination of national data (representing all organizations) and data controlled for size (i.e. number of employees, revenue size), and the general industry sector includes data controlled for size (i.e. number of employees, revenue size).
The Society believes that a competitive compensation philosophy and approach will best serve the Society. Therefore, the Society recognizes that it must continue to provide a competitive compensation package to retain existing talent and to attract executives as needed. The Society believes this approach supports its charitable mission and protects its brand and its tax-exempt status. As such, the Society has adopted a set of key principles that guide its executive compensation decision-making process, as follows:
§ The Society will uphold a competitive, yet reasonable and defensible compensation position relative to the market.
§ The Society will recognize that while providing competitive compensation to executives is a business imperative, as a tax-exempt, non-profit and highly visible organization it must assure that compensation is not excessive.
§ The Society intends to establish the highest standards of governance over executive compensation and specifically intends to meet the rebuttable presumption of reasonableness under Internal Revenue Code §4958.
§ The Society will expect vigorous goal-setting tied to its strategic, mission-related, and financial objectives and will objectively evaluate executive performance against these objectives.
§ The Society will pay for expected performance and reward the achievement of high performance.
§ The Society will require timely and accurate documentation of executive compensation decisions.
§ The Society will require complete disclosure and transparency of executive compensation levels, expect the Compensation Committee to regularly inform the Board of its actions, and make available compensation information related to disqualified executives.
§ The Society will demand and monitor management’s compliance with policies established by the Compensation Committee.
Primary Program Components
The total compensation package includes, but is not limited to, salary, fees, incentives, bonuses, severance payments and all forms of deferred compensation, whether vested or unvested, and all benefits whether or not included as income for tax purposes (e.g. medical, dental, life insurance, disability benefits).
§ Base salary ranges will be based on the median value in the market for comparable positions, as established through generally accepted compensation methods, and through the use of available surveys, and/or other appropriate forms of data as prepared by an independent compensation consultant. The base salary of each executive will be managed through a salary structure using an approach which guides the salary of a fully seasoned and high performing executive to the midpoint of the salary range. The approach takes into account specific attributes and factors related to the individual executive. Recognizing that individual factors will vary, the approach provides guidance for targeting salaries either below or above the midpoint within the salary range. The objective is to position salaries at the proper rate for the individual and to achieve the right alignment with the market. High performance should earn a market pay adjustment to achieve the salary target, but not additional merit pay.
§ Incentive compensation is the primary tool to reward outstanding executive performance. Incentive compensation levels are conservative compared to market levels and should be generally consistent for comparable positions. Incentive compensation is used to focus performance and reward executives for the achievement of outstanding results. The actual levels of annual incentive compensation, and thereby total cash compensation, for each executive will vary and will be based on organizational and individual performance. Performance objectives should reflect the key performance dimensions of the organization - mission delivery, financial strength, advocacy results, and people effectiveness. Individual weightings of these goals are appropriate in order to reflect their relative emphasis.
§ The Society provides market competitive total benefits and minimal perquisites. In addition to all the benefits made available to all employees, executives whose compensation exceeds the Internal Revenue Code limits are eligible to be considered for supplemental retirement benefits (“SERP”) subject to the approval of the Compensation Committee. The SERP is a standard agreement that is coordinated with the Society’s qualified defined benefit plan and is designed to provide pension benefits that would otherwise not be payable due to the compensation limit in the Internal Revenue Code. Executive only perquisites, e.g. car allowance, leased vehicles, reimbursement of professional advisory services, etc., are discouraged.
§ The Compensation Committee may also authorize unique program components which support the achievement of the Society’s mission. These unique components could be selectively applied, for example, individual retention agreements, special severance arrangements, etc.
Independent Voting Members:
A voting member of the Board of Directors or a committee will be considered “independent” only if he or she satisfies the following criteria:
1. The member has not been, and is not currently being compensated as an officer or other employee of the Society or of a related organization1; nor was the member compensated by an unrelated organization or individual for services provided to the Society or to a related organization, if such compensation is required to be reported in Part VII, Section A of the Society’s Form 990.
2. The member did not receive total compensation or other payments exceeding $10,000 during the Society’s tax year from the Society and related organizations as an independent contractor, other than reasonable compensation for services provided in the capacity as a member of the Board.
3. Neither the member, nor any family member2 of the member, was involved in a transaction with the Society (whether directly or indirectly through affiliation with another organization) that is required to be reported on Schedule L of the Society’s Form 990.
4. Neither the member, nor any family member of the member, was involved in a transaction with a taxable or tax-exempt related organization (whether directly or indirectly through affiliation with another organization) of a type and amount that would be reportable on Schedule L of the From 990 or 990-EZ, if required to be filed by the related organization. .
Committee members who are associated with institutions that receive grants pursuant to the Society’s various Independent Peer Review Committees and the Council for Extramural Grants will not be treated as failing to satisfy the above criteria on the basis of their relationship to the recipient institutions.
Absence of a Conflict of Interest:
A member of the Committee does not have a conflict of interest with respect to a compensation arrangement if the member:
(1) Is not a Disqualified Executive participating in or economically benefitting from the compensation arrangement and is not a family member of any such Disqualified Executive;
(2) Is not in an employment relationship subject to the direction or control of any Disqualified Executive participating in or economically benefitting from the compensation arrangement;
(3) Does not receive compensation or other payments subject to approval by any Disqualified Executive participating in or economically benefitting from the compensation arrangement;
(4) Has no material financial interest affected by the compensation arrangement; and
(5) Does not approve a transaction providing economic benefits to any Disqualified Executive participating in the compensation arrangement, who in turn has approved or will approve a transaction providing economic benefits to the member.
1 For purposes of these criteria, a “related organization” is an organization (1) that controls or is controlled by the Society; (2) is controlled by the same persons that control the Society (i.e., shared directors and officers); or (3) that qualifies (or claims to qualify) as a “supporting organization” for the Society within meaning of Internal Revenue Code Section 509(a)(3).
2 Family members include spouses, ancestors, brothers and sisters (whether whole or half blood), children (whether natural or adopted), grandchildren, great grandchildren, and spouses of brothers, sisters, children, grandchildren and great grandchildren.