Chapter 7 - Directors’ Remuneration

Abstract

This chapter considers the role of remuneration committees, and the activities of non-executive directors in this regard. The objective of the remuneration committee is to ensure that companies have a formal process of considering directors' remuneration. As a rule, executive directors should play no part in decisions on their own remuneration; there should be an alignment of the remuneration schemes and the performance objectives of the company, and the remuneration schemes should attract and retain talented individuals. To be effective, any remuneration committee should be properly constituted with a clear remit and identified authority. The Combined Code (the Code) sets out recommended practice and procedures in relation to directors' remuneration and the remuneration committee. It makes a number of detailed statement concerning the level and make-up of directors' remuneration and the procedure for determining an individual director's remuneration. Further, compliance with the Code is not mandatory; the listing rules require a listed company (incorporated in the United Kingdom) to make a disclosure statement on corporate governance and the Code in its annual report and accounts. This is the so called comply or explain approach, whereby listed companies are required to provide, in their annual report and accounts, a statement of how they have applied the main principles of the Code, and a statement as to whether or not they have complied throughout the accounting period with the Code Provisions, and to explain and justify any noncompliance.