ACCA Strategic Professional · Strategic Business Leader · The board of directors
Calder Group's non-executive directors currently receive a fee plus share options linked to the share price. Investors argue this may compromise their role. Which is the strongest governance argument against granting share options to non-executive directors?
The strongest argument is that share options link non-executives' rewards to share price performance, which may weaken their independence and objectivity when challenging executives and overseeing risk. Their role is oversight, so their pay should generally be a fee not dependent on short-term results.
- AOptions are taxed more heavily than cash fees
- BOptions may tie non-executives' rewards to short-term share performance, weakening their independence in challenging executives and overseeing riskCorrect
- COptions reduce the number of non-executives the company can appoint
- DOptions make it impossible to disclose remuneration in the annual report
Explanation
Non-executives should provide independent oversight. Performance-linked pay such as options can align their interests with the executives' short-term goals and compromise objectivity. The other points are not governance arguments: tax, board size and disclosure are not affected by this issue.
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