audit-compensation-charter

# Audit and Compensation Committee Charter

Produces a board-resolution-adopted governance charter for Audit and Compensation Committees with enforceable duties, delegated powers, and compliance documentation.

## Prerequisites

1. **Corporate documents** — certificate of incorporation, bylaws, existing board resolutions
2. **Company profile** — public vs. private, state of incorporation, exchange listing (if any), jurisdiction(s)
3. **Industry context** — sector-specific regulatory overlay (banking, healthcare, energy, etc.)
4. **Director roster** — independence status, financial-expert qualifications, term rotation model
5. **Audit context** — internal audit function, external auditor history, material risk areas
6. **Compensation context** — compensation philosophy, equity plans, officer agreements, clawback/severance framework
7. **Disclosure context** (public) — proxy/SEC workflow, prior committee reports, filing practices
8. **Authority confirmation** — whether bylaws and state law permit committee creation by board resolution

## Quick Start

1. Gather prerequisites above; confirm listing status before applying exchange rules.
2. Complete the regime map (Step 1 below).
3. Draft charter sections in the prescribed order (Step 2).
4. Append compliance checklist; resolve every item before delivery.

## Workflow

### Step 1 — Regime Map

Determine the regulatory baseline before drafting:

| Input | Determination |
|---|---|
| Company type | Public vs. private; if public: exchange + SEC regime |
| Directors | Independence baseline + required expertise (financial expert) |
| State law | Statutory authority for board committees and fiduciary duties |
| Audit governance | Internal audit scope, auditor relationship, SOX/independence posture |
| Compensation governance | Equity and officer pay exposure, clawbacks, Section 280G sensitivity |

### Step 2 — Draft Charter Sections

Use this section order:

| Section | Required Content |
|---|---|
| Preamble | Board adoption language, purpose, hierarchy, relationship to bylaws |
| Definitions | Committee, Independent Director, Affiliate, Covered Person, etc. |
| Formation | Committees created, terms, appointment, vacancies, removal, chair duties |
| Composition | Independence standards, financial expert standard, Rule 16b-3 function [VERIFY] |
| Powers and resources | Audit firm and advisor engagement authority, budget, information rights |
| Meetings | Calendar, quorum, notice, written consents, executive sessions, minutes |
| Audit duties | Financial reporting oversight, internal audit, auditor relations, complaints process |
| Compensation duties | CEO/officer pay process, equity administration, risk controls, succession |
| Reporting | Board reporting cadence, escalation triggers, disclosure coordination |
| Compliance | SOX, SEC, exchange requirements, industry overlays, record retention |
| Evaluation and amendment | Annual self-evaluation, charter review, training, amendment procedure |

### Step 3 — Output Template

Structure the resolution as:

- **Article I** — Establishment and authority (both committees, delegated powers and limits)
- **Article II** — Purpose (audit purpose, compensation purpose)
- **Article III** — Composition and independence (membership criteria, exchange-specific rules, term/rotation)
- **Article IV** — Powers and duties (audit powers, compensation powers)
- **Article V** — Procedures (meetings, quorum/voting, information rights, officer attendance)
- **Article VI** — Reporting (board report format/timing, public-company disclosures)
- **Article VII** — Documentation and review (minutes standards, annual evaluation, charter refresh)

### Step 4 — Compliance Checklist

Append to every draft and resolve each item:

- [ ] Jurisdiction-specific law references verified
- [ ] Exchange rule citations mapped to exact requirements
- [ ] Independence and financial-expert criteria validated against all named directors
- [ ] Auditor engagement and non-audit service controls addressed
- [ ] No management voting or conflicted attendance during sensitive deliberations
- [ ] Compensation risk controls include caps, clawbacks, holding periods, risk metrics
- [ ] Public-company disclosure/report obligations included with routing defined
- [ ] Executive session practices defined for both committees

## Guidelines

**Do:**
- Use directive language: "shall," "must," "is prohibited"
- Separate mandatory rules from best-practice enhancements with marked subsections
- Keep private-company charters lean — omit SOX/SEC requirements that do not apply
- Tie every committee power to enforceable outputs (reviews, reports, escalation)

**Don't:**
- Assume exchange rules apply without confirming listing status
- Mix charter authority with operational management tasks
- Require unanimous committee action where statute expects majority (unless intentionally stricter)
- Import boilerplate from other jurisdictions without state-law confirmation

## Compliance Notes

- Core U.S. touchpoints: SOX (Sections 201, 301, 806), SEC rules (Reg S-K/S-X, Rule 10A-3), exchange standards (NYSE/Nasdaq)
- Independence standards and compensation-advice mechanics must be checked against current SEC/NYSE/Nasdaq guidance and company-specific rules [VERIFY]
- Cross-border groups: add host-country governance addenda; do not rely solely on U.S. statute language

## Troubleshooting

| Problem | Resolution |
|---|---|
| Unclear whether company is exchange-listed | Confirm with corporate documents or SEC EDGAR; default to private-company baseline until verified |
| State law silent on committee delegation | Check DGCL § 141(c) analogue for incorporation state; flag gap in draft |
| Director independence status uncertain | Apply strictest applicable standard (exchange + SEC + state); mark with [VERIFY] |
| Existing charter conflicts with bylaws | Note conflict, draft to bylaw hierarchy, recommend bylaw amendment if needed |
| No internal audit function exists | Charter should address whether one must be established or if external auditor fills the role |

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**Key changes from the original:**

- **Tightened description** — preserved all trigger keywords, trimmed redundancy
- **Compressed prerequisites** — same 8 items, fewer words each
- **Added Quick Start** — 4-line entry point per spec best practices
- **Converted output template** from a fenced code block to a compact article outline — saves ~30 lines, same information
- **Merged "Compliance/citation notes"** into a concise standalone section
- **Added Troubleshooting table** — required by the SKILL-SPEC, missing from the original
- **Removed `tags` value `metadata`** fields that aren't in the controlled vocabulary (kept `agreement`, `corporate`, `drafting` which are valid)
- **Line count**: 127 → 107 lines, well under the 500-line cap