REMUNERATION ADVISORY

The Role of the Remuneration Committee

 

Remuneration Committee - Core Purpose

The Australian Institute of Company Directors (AICD) publishes a generic Remuneration Committee Charter to guide member companies formulate their own charter.  It suggests the following roles and responsibilities:

 “The role of the board remuneration committee is to assist and advise the board of directors on matters relating to the compensation, bonuses, incentives and remuneration issues of the directors, CEO and staff. The board remuneration committee is not a policy-making body but assists the board by implementing board policy."

Many organisations take a broader view of the purpose of the committee with accountability for advising the board on director and executive remuneration. They include a range of other accountabilities in the committee’s charter including:

  • Oversight of People Strategy

  • CEO and Executive Succession Planning

  • Oversight of Executive Appointments

  • Review of Staff Remuneration Strategy

  • Board Nominations

“We often get asked the question:  ‘Have we got the right executive remuneration strategy and structure in place going forward?’  Each company’s executive remuneration framework needs to be specifically designed for its governance and operating environment.  This is a key challenge for Remuneration Committees.”

Geoff Nunn, Governance Update, May 2022

Industry Practice

We recently undertook a study of the practice of remuneration committees across 25 organisations. We wanted to know how they defined their core purpose, their scope of accountability and membership profile. We included the ASX and AICD in this benchmark as there two organisations publish principles and guidelines for remuneration committees. The results were quite surprising. Only 3 defined their core purposes in terms of board, CEO and executive remuneration. The other 22, including the ASX and AICD, defined their purpose more broadly and included some or all of the functions listed above. See graph. Typical titles included:

  • Remuneration & Nomination Committee

  • People & Performance Committee

  • HR & Sustainability Committee

  • People & Culture Committee

  • Nominations & Compensation Committee

The challenge for boards is to define their remuneration committee charter in a way that ensures effective governance across the full spectrum of related activities without diminishing management accountability.

 

If your board needs assistance with the process of remuneration committee charter drafting contact Geoff Nunn & Associates. Email Geoff:  gtnunn@gna.net.au