If they are not doing so already, compensation committees should consider examining whether the executive compensation programmes encourage excessive or unnecessary risk-taking in the context of the company's business. This exercise should include a periodic review of the design and operation of the programmes with the company's risk officers and compensation advisors to assess whether the performance goals foster long-term value creation. Conditioning bonuses or other incentive rewards on extraordinary short-term growth or on one particular financial target may have the unintended consequence of encouraging executives to ignore longer-term risks that would, in hindsight, compromise attainment of the stated target.

Compensation committees should also look to whether incentive programmes inherently encourage risk-taking by allowing executives to cash out based on short-term profits that may not be sustainable in subsequent years or by offering executives unlimited or highly leveraged upside potential, with limited or no downside risk. By insulating the executive from the threat of the downside, the executive may be incentivised to assume more risk to reap the upside benefits.

Some suggestions that, depending on a company's situation, might mitigate the risk of encouraging executives to take unwarranted risks include the following:

Director White has strongly suggested that all companies whose compensation committees engage in a risk analysis consider describing this analysis in their proxy statements. Director White was explicit that, to the extent that risk analysis is or becomes a "material part of a company's compensation policies or decisions", discussion in the CD&A is required under the SEC's existing rules.