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IAI Actuarial Core Principles · Business Finance · Corporate governance and the regulation of companies

In good governance practice, which body is normally responsible for setting executive directors' pay policy in a listed company?

A remuneration committee composed mainly of independent non-executive directors should set executive pay policy. Independence avoids conflicts of interest that arise if executives determine their own rewards, and the committee reports to shareholders. Auditors, lenders and unions do not hold this responsibility under good governance practice.

  1. AA remuneration committee made up mainly of independent non-executive directorsCorrect
  2. BThe chief executive alone
  3. CThe external auditor
  4. DThe company's lenders
  5. The employee union

Explanation

Codes recommend a remuneration committee of independent non-executive directors to avoid executives setting their own pay. Auditors, lenders and unions do not set it, and the CEO setting it would be a conflict of interest.

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