Chapter 6 - Remuneration Of Directors And Senior Executives Flashcards Preview

Corporate Governance > Chapter 6 - Remuneration Of Directors And Senior Executives > Flashcards

Flashcards in Chapter 6 - Remuneration Of Directors And Senior Executives Deck (22)
Loading flashcards...
1

For what reasons is the remuneration of senior executives considered a corporate governance issue in some countries?

Various reasons:
- excessive payments reduce investor confidence and anger employees
- remuneration incentives should be aimed at rewarding performance
- shareholders object to having no influence over remuneration

2

What are the main component elements of the remuneration package of a senior executive director?

- basic salary
- payment into a pension scheme
- annual bonus linked to performance
- long-term incentives (usually share options)

3

What company performance targets might be used as a basis for fixing annual bonus payments to a CEO?

Financial targets such as EBITDA
Longer term strategic targets

4

What are the problems in linking rewards to performance of senior executives?

An executive might leave before his impact is fully realised, meaning he may be paid more than he deserves.

5

What are the advantages and disadvantages with the remuneration committee using the services of consultants?

Reliance on what other organisations are paying their executives can create an upward spiral of remuneration.

6

What company performance targets might be used as a basis for deciding how many shares should be granted to a senior executive as a long-term incentive arrangement?

Total Shareholder Return (TSR) is most common.

7

What are the drawbacks to using share options as long term incentive schemes?

- they reward the executive for increases in share price, which encourages "short termism"
- executives may be reluctant to award dividends to seek takeovers
- share price is not always linked to performance

8

What are the two elements of remuneration?

1 Fixed element (paid regardless of performance)
2 Variable element (performance-related incentives)

9

What are the general provisions of the UK Code on the design of remuneration packages?

Schedule A of the Code:
- remuneration committee should decide an appropriate balance between fixed and performance related pay
- performance conditions should be relevant, stretching and designed to promote long-term success
- there should be upper limits on incentives

10

What are the provisions in the UK Code on short-term and long-term incentive schemes?

Schedule A:
- share options should not be offered at a discount to the current market price
- any new long-term incentive should be shareholder-approved
- total rewards should not be excessive

11

What does the UK Code state about remuneration policy?

There should be a formal and transparent procedure for developing policy on executive remuneration and for fixing the remuneration packages for individual directors. No director should be involved in deciding his or her remuneration.

12

What are the principal responsibilities of the remuneration committee?

- developing remuneration policy
- negotiating the remuneration of individual directors
- setting the remuneration for all senior executives and directors
- set the remuneration of the CoSec

13

According to the UK Code, what should the composition of a remuneration committee for a FTSE350 be, and who may be its chairman?

- entirely independent NEDs
- at least 3 members
- the company chairman may not be the chairman of the committee, but can be a member

14

Is it appropriate for a remuneration committee to consult the company chairman of CEO on remuneration packages for individual executives?

Yes, but the committee should take care to recognise and avoid conflicts of interest.

15

What does the UK Code state about remuneration policy?

There should be a formal and transparent procedure for developing policy on executive remuneration and for fixing the remuneration packages for individual directors. No director should be involved in deciding his or her remuneration.

16

What are the principles or provisions of the UK Code regarding severance payments to senior executives?

2 provisions:
- when negotiating terms of appointment, the remuneration committee should consider what compensation commitments the company will have in the event of early termination of office.
- notice periods for executive directors should be one year or less.

17

What principles on severance pay were recommended in the joint ABI/PLSA statement on severance pay?

- severance payments arising from poor performance should not extend beyond basic salary
- companies should provide full disclosure in their remuneration report of the constituent elements of any severance payments.

18

Why should NED remuneration be a fixed fee, not a incentive based package?

To protect NED independence.

19

What are the rules in the UK for the disclosure of details of director's remuneration by listed companies?

CA 2006 requires a remuneration report in the annual report and accounts, containing:
- a statement by the committee chairman
- company policy on directors' remuneration
- an implementation report, explaining how policy has been implemented.

20

Why might it be appropriate for shareholders to be allowed to vote on remuneration policy for directors, but not on the remuneration package of individual directors?

It would be problematic to have to hold a vote on the individual remuneration of every director.

21

Since when have shareholders had a binding vote on remuneration policy?

Since 2013

22

What are the consequences if a director receives a payment not in line with the remuneration policy approved by shareholders?

The director holds the money in trust, and it may be reclaimed by the company.