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CSEET · Economic and Business Environment · Elements of Corporate Governance

A listed public company's Nomination and Remuneration Committee is framing its remuneration policy for directors, key managerial personnel and senior management. Which of the following is a requirement the committee must ensure under Section 178(4)?

The policy must involve a balance between fixed and incentive pay reflecting short and long-term performance objectives appropriate to the company and its goals. Section 178(4) also requires that remuneration be reasonable to attract and retain talent and that its relationship to performance be clear.

  1. ARemuneration must be entirely fixed to avoid risk-taking
  2. BRemuneration must be entirely incentive-based on short-term profit
  3. CRemuneration must involve a balance between fixed and incentive pay reflecting short and long-term performance objectivesCorrect
  4. DRemuneration must be equal for all directors irrespective of performance

Explanation

Section 178(4)(c) requires a balance between fixed and incentive pay reflecting short and long-term performance objectives. Wholly fixed or wholly short-term pay ignores this balance, and equal pay disregards the requirement that remuneration relate clearly to performance benchmarks.

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