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

Brightmoor Ltd's remuneration committee is chaired by Rahul, a non-executive director. Rahul was the company's finance director until two years ago and still holds a large share option package from that time. The chair of the board says he is the most knowledgeable person for the role. Which governance concern is MOST relevant?

The key concern is that Rahul is not independent. As a recent former executive with retained share options, he has a personal financial interest and ties to management, so he cannot objectively set executive pay. Governance codes want remuneration committees composed of independent non-executive directors.

  1. ARahul lacks sufficient independence to set executive pay objectivelyCorrect
  2. BNon-executive directors should never serve on committees
  3. CRemuneration should be decided only by the executive directors
  4. DRahul's knowledge of the company is irrelevant to the committee's work

Explanation

Governance codes expect remuneration committees to be made up of independent non-executives. A recent former executive with retained share options has a personal interest and past ties to management, which compromises objectivity. Knowledge is useful but does not offset the lack of independence.

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