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Remuneration of Directors and Senior Executive
The remuneration of top-level executives is a critical aspect of corporate governance and has a significant impact on an organization's performance, culture, and stakeholder relationships. This interconnected web of ideas explores the various components, considerations, and challenges associated with remunerating directors and senior executives.
Edited at 2023-07-29 06:31:34- System of Risk Management and Internal Control
This mind map is designed to explore the interconnected concepts of risk management and internal control within organizations. Effective risk management and internal control practices are essential for safeguarding an organization's assets, maintaining financial integrity, and achieving strategic objectives while ensuring compliance with relevant laws and regulations. By visually representing these concepts and their interrelationships, the mind map aims to provide a comprehensive overview of how organizations can effectively identify, assess, and manage risks while implementing robust internal controls to safeguard their operations and assets.
- Risk Structures, Policies, Procedures Compliance
Risk management involves the identification, assessment, and prioritization of risks that may affect an organization's ability to achieve its objectives. It is a proactive process that involves identifying potential risks and developing strategies to mitigate or manage them. Internal control, on the other hand, is the system of policies, procedures, and processes that an organization implements to achieve its objectives. It provides reasonable assurance that an organization's operations are effective, efficient, and compliant with applicable laws and regulations.
- Remuneration of Directors and Senior Executive
The remuneration of top-level executives is a critical aspect of corporate governance and has a significant impact on an organization's performance, culture, and stakeholder relationships. This interconnected web of ideas explores the various components, considerations, and challenges associated with remunerating directors and senior executives.
Remuneration of Directors and Senior Executive
- System of Risk Management and Internal Control
This mind map is designed to explore the interconnected concepts of risk management and internal control within organizations. Effective risk management and internal control practices are essential for safeguarding an organization's assets, maintaining financial integrity, and achieving strategic objectives while ensuring compliance with relevant laws and regulations. By visually representing these concepts and their interrelationships, the mind map aims to provide a comprehensive overview of how organizations can effectively identify, assess, and manage risks while implementing robust internal controls to safeguard their operations and assets.
- Risk Structures, Policies, Procedures Compliance
Risk management involves the identification, assessment, and prioritization of risks that may affect an organization's ability to achieve its objectives. It is a proactive process that involves identifying potential risks and developing strategies to mitigate or manage them. Internal control, on the other hand, is the system of policies, procedures, and processes that an organization implements to achieve its objectives. It provides reasonable assurance that an organization's operations are effective, efficient, and compliant with applicable laws and regulations.
- Remuneration of Directors and Senior Executive
The remuneration of top-level executives is a critical aspect of corporate governance and has a significant impact on an organization's performance, culture, and stakeholder relationships. This interconnected web of ideas explores the various components, considerations, and challenges associated with remunerating directors and senior executives.
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- Outline
Remuneration of Directors & Senior Executive
Why remuneration is an important Corporate Governance Issue?
Co need to attract & retain talented executives
Remunerative Incentives can be used to motivate executives
Incentives need to be aligned with the interest of s/holder
High salaries + performance-related pay is acceptable if they're making good returns
Excessive remuneration for only moderate perf. results in the co being run for the benefit
Directors should not be rewarded for failure
Directors should't influence their own remuneration
High levels of executive pay undermine public trust in large business
RC should take into account the pay & conditions of the emp when setting Director's pay
Directors' bonuses & incentives payment sometimes based on their past perf. (unavoidable)
S/holder had very little influence over the remuneration of directors & senior executives
Require s/holders to approach each ind's remuneration package in advnce (Impractical)
S/holder can exercise greater control if had a role in setting the co's remuneration policy
If s/holder not happy, they ought to be able to take action which force co to change its behaviour
Elements of Remuneration for ED & SE
Executive Directors
Appointed under a service contract (To perform executive magmt function)
Under contract, they forego the payment of directors' fee & paid salary instead
Non-Executive Directors
Paid directors' fees
Do not have service contract
Appointed using a relatively simple letter of appointment
Fees determined by Board
Component of Executive Remuneration
Basic salary
Payment into a pension scheme for ind
Annual bonus (usually linked to annual financial perf)
Long-term incentive (in the form of share options/share award)
Other benefits & perks (free medical insurance, co. car, accommodation)
MCCG Principles & Provisions on Remuneration
Practice 7.1
Board has remuneration policy & procedure to det the remuneration of D & SE, (take into acc demands, complexities & perf)
Should appropriately reflect the different roles & responsibilities of NED, ED & SM
Periodicallly reviewed & made available at co's website
Practice 7.2
Has a Remuneration Committee (to implement its remuneration policies & procedures including reviewing & recommending matters relating to the remuneration
RC has written Terms of Reference which deals with its authority & duties & need to disclose on co's website
Remuneration Committee
To assist the board in developing and administrating a fair and transparent procedure for setting policy on remuneration
Should only consist of non-executive directors and a majority of them must be independent directors, drawing advice from experts, if necessary
Executive directors should not be involved in discussions to decide on their remuneration
Directors who are shareholders and controlling shareholders with a nominee or connected director on the board should also abstain from voting on the resolution to approve directors’ fees at the general meeting
Listed companies are encouraged to table separate resolutions on the approval of the fees of each non-executive director
Directors’ remuneration report
Practice 8.1
There is detailed disclosure on named basis of the remuneration of individual directors
The remuneration breakdown of individual directors includes fees, salary, bonus, benefits in-kind and other emoluments
Practice 8.2
The board discloses on a named basis the top five senior management’s remuneration component including salary, bonus, benefits in-kind and other emoluments in bands of RM50,000
Directors’ remuneration policy
Required to form part of its directors’ remuneration report if the company intends to move a resolution to approve a new policy or renew the existing policy at the next accounts meeting
A quoted company cannot make any payments to a director unless they are consistent with the latest policy approved by shareholders or the payment has specifically approved by s/holders
The directors must invite shareholders to approve their policy at least once every three years whether or not it has been revised, and must obtain shareholder approval for any revised policy before they can make any payments under that new policy
The directors’ remuneration policy must be made available on the company’s website, either as part of the company’s annual report and accounts or, if it was revised separately, as a separate document
Compensation for loss of office and rewards for failure
Most executive directors enter into a service contract with their company that provides for an annual review of their remuneration and a minimum notice period in the event of dismissal
When a company decides to dismiss a director, it will be liable to pay compensation in accordance with the terms of this service agreement
If a contract provides for a six month notice period, the director will be contractually entitled to six months’ salary on being dismissed, subject to any obligations regarding mitigation
The length of a director’s service contract or notice period will be one of the most important factors determining compensation payable in the event of early termination
Details of any payments made (or payable) to former directors for loss of office during the financial year must be disclosed in the annual remuneration report, together with an explanation of how each component was calculated and whether any discretion was exercised in respect of the payment
Non-executive remuneration
Not employees of the company, although are usually treated as such for tax purpose
Receive a fee for their services as an officer of the company, not a salary
Do not have a service contract with the company
The terms of their appointment are set out in a simple letter of appointment
If they are removed, there is no breach of contract and no compensation will usually be payable
The remuneration will be fixed by the board or under some other procedures determined by the company’s constitution
The fees paid to the chair and NEDs should reflect the time commitment and responsibilities of the role they undertake
Remuneration of Directors & Senior Executive
Why remuneration is an important Corporate Governance Issue?
Co need to attract & retain talented executives
Remunerative Incentives can be used to motivate executives
Incentives need to be aligned with the interest of s/holder
High salaries + performance-related pay is acceptable if they're making good returns
Excessive remuneration for only moderate perf. results in the co being run for the benefit
Directors should not be rewarded for failure
Directors should't influence their own remuneration
High levels of executive pay undermine public trust in large business
RC should take into account the pay & conditions of the emp when setting Director's pay
Directors' bonuses & incentives payment sometimes based on their past perf. (unavoidable)
S/holder had very little influence over the remuneration of directors & senior executives
Require s/holders to approach each ind's remuneration package in advnce (Impractical)
S/holder can exercise greater control if had a role in setting the co's remuneration policy
If s/holder not happy, they ought to be able to take action which force co to change its behaviour
Elements of Remuneration for ED & SE
Executive Directors
Appointed under a service contract (To perform executive magmt function)
Under contract, they forego the payment of directors' fee & paid salary instead
Non-Executive Directors
Paid directors' fees
Do not have service contract
Appointed using a relatively simple letter of appointment
Fees determined by Board
Component of Executive Remuneration
Basic salary
Payment into a pension scheme for ind
Annual bonus (usually linked to annual financial perf)
Long-term incentive (in the form of share options/share award)
Other benefits & perks (free medical insurance, co. car, accommodation)
MCCG Principles & Provisions on Remuneration
Practice 7.1
Board has remuneration policy & procedure to det the remuneration of D & SE, (take into acc demands, complexities & perf)
Should appropriately reflect the different roles & responsibilities of NED, ED & SM
Periodicallly reviewed & made available at co's website
Practice 7.2
Has a Remuneration Committee (to implement its remuneration policies & procedures including reviewing & recommending matters relating to the remuneration
RC has written Terms of Reference which deals with its authority & duties & need to disclose on co's website
Remuneration Committee
To assist the board in developing and administrating a fair and transparent procedure for setting policy on remuneration
Should only consist of non-executive directors and a majority of them must be independent directors, drawing advice from experts, if necessary
Executive directors should not be involved in discussions to decide on their remuneration
Directors who are shareholders and controlling shareholders with a nominee or connected director on the board should also abstain from voting on the resolution to approve directors’ fees at the general meeting
Listed companies are encouraged to table separate resolutions on the approval of the fees of each non-executive director
Directors’ remuneration report
Practice 8.1
There is detailed disclosure on named basis of the remuneration of individual directors
The remuneration breakdown of individual directors includes fees, salary, bonus, benefits in-kind and other emoluments
Practice 8.2
The board discloses on a named basis the top five senior management’s remuneration component including salary, bonus, benefits in-kind and other emoluments in bands of RM50,000
Directors’ remuneration policy
Required to form part of its directors’ remuneration report if the company intends to move a resolution to approve a new policy or renew the existing policy at the next accounts meeting
A quoted company cannot make any payments to a director unless they are consistent with the latest policy approved by shareholders or the payment has specifically approved by s/holders
The directors must invite shareholders to approve their policy at least once every three years whether or not it has been revised, and must obtain shareholder approval for any revised policy before they can make any payments under that new policy
The directors’ remuneration policy must be made available on the company’s website, either as part of the company’s annual report and accounts or, if it was revised separately, as a separate document
Compensation for loss of office and rewards for failure
Most executive directors enter into a service contract with their company that provides for an annual review of their remuneration and a minimum notice period in the event of dismissal
When a company decides to dismiss a director, it will be liable to pay compensation in accordance with the terms of this service agreement
If a contract provides for a six month notice period, the director will be contractually entitled to six months’ salary on being dismissed, subject to any obligations regarding mitigation
The length of a director’s service contract or notice period will be one of the most important factors determining compensation payable in the event of early termination
Details of any payments made (or payable) to former directors for loss of office during the financial year must be disclosed in the annual remuneration report, together with an explanation of how each component was calculated and whether any discretion was exercised in respect of the payment
Non-executive remuneration
Not employees of the company, although are usually treated as such for tax purpose
Receive a fee for their services as an officer of the company, not a salary
Do not have a service contract with the company
The terms of their appointment are set out in a simple letter of appointment
If they are removed, there is no breach of contract and no compensation will usually be payable
The remuneration will be fixed by the board or under some other procedures determined by the company’s constitution
The fees paid to the chair and NEDs should reflect the time commitment and responsibilities of the role they undertake