Last month, I blogged about the SEC’s approval of a PCAOB budget that slashed the compensation of the PCAOB’s board members. Over on “The Audit Blog,” Dan Goelzer provides a little historical background on how positions on the PCAOB board came to be so lucrative, and discusses some of the potential implications of the pay cut on the PCAOB’s oversight mission.

While acknowledging that the reduced compensation for board members and senior staff will discourage applicants who are primarily attracted by a high salary and don’t have any special commitment to advancing the public interest in public company auditing and financial reporting, he warns that there’s a potential downside to decreasing the applicant pool:

On the other hand, service on both the Board and senior staff requires specialized expertise, and people with that expertise are likely to be highly paid already. Personal circumstances may make it difficult for some qualified individuals to accept a large pay cut despite a sincere interest in this type of public service.

The new compensation levels could make it more likely that two kinds of people will be interested in PCAOB Board and executive-level staff positions — senior professionals who are near retirement and are not financially dependent on their compensation, and more junior, less experienced individuals for whom the lower salaries are more consistent with their current pay. Ideally, however, just as salary considerations should not unduly incentivize PCAOB service, salary levels should not prevent people with the necessary specialized technical knowledge and dedication to public service from joining the PCAOB.

He also points out that the PCAOB has historically experienced low turnover among its senior staff, and that lower compensation levels may increase turnover. Dan warns that this could destabilize the staff and undermine institutional knowledge.

– John Jenkins