Tuesday 22 January, 2002
Recent business failures have focused the spotlight on Board
remuneration committees. At least some of this focus was generated when
it became public knowledge that executives of failed companies such as
HIH, One.Tel and Ansett enjoyed healthy remuneration packages (and in
some cases, performance based incentives) in the period prior to the
collapse.
Board Remuneration Committee’s accountabilities are clear:
Performance measures driving short and long term incentive plans must incorporate a range of factors. They should not be limited to financial and stock market measures. They should include those measures which support the long term viability of the organisation such as environmental performance, operational performance, market share, effective research and development, investment in new ventures. Effective performance against some of these measures may not be immediately reflected in short term financial results or returns to shareholders.
The question of executive share and option plans continues to be a vexed one. We have all heard the arguments about alignment of shareholder and executive interests. However, organisational performance is complex and multi-faceted. For investors growth in share price and returns are all important. Not all shareholder take a long term perspective.
The notion of securing executive commitment through schemes which seek to generate wealth in the medium term glosses over a complex range of organisation dynamics. True commitment extends beyond financial incentives and can only be sustained where productive relationships, achievable goals, potential for growth and recognition are features of the executive environment.
In this context the Remuneration Committee (and Board) has a more subtle role - monitoring the internal climate of the organisation and assisting the CEO create a culture which will support the achievement of short and long term goals.
- To set Fixed Annual Remuneration levels for the Chief Executive Officer and other senior executives in the organisation.
- To ensure that executive remuneration levels are competitive
bearing in mind relative job size, market sector, company performance
and capacity to pay.
- To overview the structure of short and long term executive incentive plans.
- To agree executive performance targets (as they relate to incentive
plans) and ensure that shareholders receive fair performance return for
expenditure (current or future) on incentive based remuneration.
- To overview remuneration practice across the organisation and ensure appropriate controls and systems are in place.
Performance measures driving short and long term incentive plans must incorporate a range of factors. They should not be limited to financial and stock market measures. They should include those measures which support the long term viability of the organisation such as environmental performance, operational performance, market share, effective research and development, investment in new ventures. Effective performance against some of these measures may not be immediately reflected in short term financial results or returns to shareholders.
The question of executive share and option plans continues to be a vexed one. We have all heard the arguments about alignment of shareholder and executive interests. However, organisational performance is complex and multi-faceted. For investors growth in share price and returns are all important. Not all shareholder take a long term perspective.
The notion of securing executive commitment through schemes which seek to generate wealth in the medium term glosses over a complex range of organisation dynamics. True commitment extends beyond financial incentives and can only be sustained where productive relationships, achievable goals, potential for growth and recognition are features of the executive environment.
In this context the Remuneration Committee (and Board) has a more subtle role - monitoring the internal climate of the organisation and assisting the CEO create a culture which will support the achievement of short and long term goals.
Source:ceoonline.com
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