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ACCA Strategic Professional · Strategic Business Leader · The board of directors

At Brightwell Group, the finance director sits on the remuneration committee and helps decide the chief executive's bonus. The bonus is based on reported profit, which the finance director prepares. Which governance weakness does this MOST directly illustrate?

The weakness is lack of independence creating a conflict of interest. An executive who prepares the profit figures is helping set a bonus based on them, whereas a remuneration committee should be made up of independent non-executive directors.

  1. ALack of independence leading to a conflict of interest in setting executive payCorrect
  2. BInsufficient frequency of audit committee meetings
  3. CAbsence of a formal succession plan for the board
  4. DExcessive use of non-executive directors on the board

Explanation

Remuneration committees should consist of independent non-executive directors so that pay is not set by those with a personal interest. Here the finance director influences a bonus tied to figures they produce, creating a conflict. Using non-executives is the recommended remedy, not a weakness.

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