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NFP Compensation Insights | November 2022

Compensation Risk Assessments

As we near closer to the 2023 proxy season, preparations are underway as public companies gather requirements for various compensation-related disclosures. Among them are the results of a compensation risk assessment. The SEC requires detailed disclosure only if the company believes there is significant risk. It has become common practice for organizations to simply state they conducted the assessment and don’t believe excessive risk exists. However, it is important for companies to conduct thorough assessments by third-party consultants to properly identify red flags and offer ways to mitigate risks.

In this edition of Compensation Insights, we provide more information on what a thorough analysis should include, what categories of compensation need to be examined and what questions should be asked in order to effectively identify risks. And more specifically, what areas should be analyzed in relation to executive compensation and corporate governance. We hope you find this helpful as you prepare for proxy season. As always, reach out to NFPCC with any questions or for help conducting an assessment.

Compensation Risk Assessments

By Madison Lewis

Incentive compensation holds an important yet unique place within a company’s pay program initiatives. Both long and short-term incentive plans should be designed to balance attracting and retaining top-level talent in conjunction with motivating behaviors to achieve a company’s strategic, operational, and financial performance goals; however, often times these programs can pose significant risk to a company if not designed well.

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How to Manage Risks in Incentive Compensation Plans

Partnering with The Risk Management Society, we hosted a webinar on compensation risk management, discussing how to balance risk management programs and strategies with compensation that attracts and retains talent and achieves organization goals. Most executive compensation plans incentivize performance around revenue growth and shareholder value, and compensation reflects that.

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Compensation Risk Assessments

If you have had occasion to read the Compensation Discussion & Analysis section of a proxy statement recently, you likely came across a statement quite similar to this one: “Our Compensation Committee, with assistance from internal risk management staff and the Committee’s compensation consultant, has assessed our compensation programs and has concluded that our compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on us.”

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Exciting New Partnership with ABGi USA

NFPCC is excited to announce a new partnership with ABGi USA that expands our capabilities mutually to better serve our clients. ABGi USA is a trusted tax incentive advisor for American businesses specializing in tax strategies for credits and deductions. ABGi has built its foundation on legal and ethical IRS business best practices which have proven success for over 35 years.

Tax incentive programs provided by ABGi:

  • Research and Development Tax Credit: Provides a dollar-for-dollar reduction in a company’s Federal Income tax liability. Created for American businesses that design or develop, new or improved products, processes, formulas, inventions, software, or techniques.
  • 179D Deduction: Tax deduction for new construction or renovation to HVAC, interior lighting, or building envelope systems of commercially owned or government-owned buildings.
  • Cost Segregation: An accelerated depreciation method for anyone who has constructed, purchased, expanded, or remodeled any kind of real estate.

Tax incentive programs reward business innovation and encourage process efficiency. The good news is that most businesses qualify for tax credits and deduction programs.

Reach out to NFPCC for more information on these services provided by ABGi USA and any questions you may have. 

Our Rebranding as NFP’s Compensation Consulting Practice is Complete!

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