What governance risk exists when compensation for executives is approved without benchmarks?

• A. Fiduciary and reasonableness risk.
• B. Conflict of interest.
• C. Regulatory noncompliance.
• D. Operational inefficiency.

Answer: (A)

When compensation for executives is approved without benchmarks, those approving it lack an objective standard to judge whether the pay is fair, justified, and linked to performance or market norms. That undermines fiduciary duties of care and loyalty, creating fiduciary and reasonableness risk: the board or compensation committee may authorize pay that is excessive or not warranted, exposing the organization to shareholder criticism, remediation costs, or legal challenges. The idea is about whether governance bodies are exercising proper oversight and ensuring pay is reasonable, not about a personal conflict needing to be proven (which would be a separate concern), explicit regulatory rules, or operational efficiency.