ACCA Strategic Professional · Strategic Business Leader · The board of directors
Delmar Tech's remuneration committee is made up of the CEO, the finance director and one non-executive. The CEO's bonus was recently increased substantially. Investors argue the process is flawed. Which change would best address the governance concern?
The remuneration committee should consist solely of independent non-executive directors. This removes the conflict of interest in executives setting their own pay, giving investors confidence that rewards are set objectively and linked to company performance.
- AMake the committee consist solely of independent non-executive directors with no executive setting their own payCorrect
- BReplace the committee with a single decision by the CEO to speed approval
- CMove bonus decisions to the finance director only
- DDisclose the bonus only to the external auditors
Explanation
Executives should not determine their own remuneration, so the committee should be independent non-executives to avoid conflict of interest. Giving decisions to the CEO or finance director retains the conflict, and limiting disclosure reduces transparency.
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