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Remuneration Committees mark a crucial issue for corporate governance. Here, we demonstrate key insights from the Non-Executive Directors' Handbook on the complexities of executive remuneration, particularly in light of the upcoming Remuneration Committee Training Workshop.
The remuneration of executive directors and other senior executives is an important and emotive aspect of corporate governance, with several complex issues involved.
To ensure fairness and transparency, the UK Corporate Governance Code mandates that independent NEDs must determine executive pay through a remuneration committee, but the act of creating a balance between incentivising or attracting top talent while still addressing concerns about excessive pay is no easy feat. Institutional investors closely monitor executive pay and may challenge boards at AGMs if concerns arise. To maintain accountability, companies must disclose remuneration policies, with quoted firms requiring shareholder approval of pay policies every three years.
Executive Remuneration has been recognised in the UK since the 1990s as a problem for good corporate governance and NEDs must be aware of issues involved.
With our first Remuneration Committee Training session of the year coming up this March, we thought it would be a great time to spotlight some key resources for RemCo expertise, highlighting some of the insights offered by the Non-Executive Directors' Handbook.
The Handbook explores key points of reference. For example in the UK, guidance on remuneration for directors and senior executives is contained in the UK Corporate Governance Code and the FRC Guidance on Board Effectiveness, although the rules on disclosure of remuneration details and shareholder approval of remuneration policy are in the Companies Act 2006. The QCA has also published a Remuneration Committee Guide for Small and Mid-Size Quoted Companies which was updated in 2020.
Key topics include:
- Remuneration as an issue in corporate governance
- The need for a remuneration committee
- Duties of the remuneration committee
- Remuneration package structures
- Linking rewards to performance
- The design of performance-related schemes
- Share option schemes and performance share awards
- Equity incentive schemes: the accounting problem
- Terms of employment and compensation for loss of office
- Remuneration of NEDs
- Remuneration and shareholder attitudes
- Remuneration committee report
- The remuneration report
- Disclosures on pay: pay ratios
The NED Handbook also provides checklists for linking remuneration to performance and understanding principles of remuneration, offering a critical exercise for NEDs.
Meanwhile, our Remuneration Committee Workshop will be taking place on Thursday 27 March, offering up-to-date insights with the latest expert perspectives on this crucial division of corporate governance. The course is designed to help participants to understand how they can perform effectively as a member of a Remuneration Committee, or best support the committee in its various activities while working alongside it, and is appropriate for both beginners and those with a great deal of experience in this area.
Learn More:
You can access a comprehensive knowledge base on Remuneration Committees in the Non-Executive Directors' Handbook, available at the link here (Premium Members Only).
And to read more about our Remuneration Committee Training Workshop, follow the link here.