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NEW YORK (Reuters) - Company directors in the United States have a new monster under the bed.
A seat on the audit committee was once considered the riskiest role for corporate directors, but the recent focus on executive pay has put an uncomfortable spotlight - along with some nasty lawsuits - on the group that oversees compensation.
"Risk has shifted to the compensation committee," said Dennis Whalen, executive director of KPMG's audit committee institute, speaking at the National Association of Corporate Directors' spring forum in New York on Tuesday.
Social activists, shareholders and attorneys are piggybacking on Occupy Wall Street's mistrust of large companies, spearheading social media campaigns and lawsuits to take companies to task for pay discrepancies between corporate chiefs and their underlings.
Compensation litigation has soared, said Michael Bongiorno, partner in law firm WilmerHale's securities and litigation department.
"How much are people getting paid and why are they getting paid that much?" said Bongiorno. "Every aspect of compensation" is under fire, he said.
In April, Citigroup Inc Chief Executive Vikram Pandit and the bank's directors were sued by a shareholder accusing them of awarding outsized pay to top executives. And Nabors Inc, owner of the world's largest land-drilling fleet, in 2011 fielded a Securities and Exchange Commission informal inquiry into its executive benefits.
"Personal reputation risk, being sued, being challenged by regulators, being challenged by shareholders" are just a few of the risks faced by compensation committee members, said Whalen.
Compensation committees oversee and approve pay for a company's executive officers. In contrast, the audit committee probes and investigates the firm's financial reporting and disclosure.
The audit committee is usually seen as particularly "risky" for board members because they must understand and oversee complex accounting estimates.
"Everything flows to the financial statement," said Whalen.
The new focus on compensation committees as risky is "surprising," said Frank Traylor, who sits on the board of three companies, including Broomfield, Colorado-based govAscend, a privately held mobile application company. "Maybe it's a factor of class warfare, maybe it's a factor of the tough economy. Everything now is seen through the lens of risk. It's turning everything upside down."
Added Bongiorno: "There's a cottage industry of lawsuits. If there's any way to chip away at the edge of compensation, you'll see a lawsuit about it."
Reporting By Chelsea Emery; Editing by Lauren Young and Matthew Lewis