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CS Professional · Environmental, Social and Governance (ESG) - Principles and Practice · Board Committees

Orchid Pharma Ltd's NRC is drafting a remuneration policy. Draft clause: 'Senior management pay shall be wholly fixed salary, revised yearly by inflation, so that it is independent of company results.' Which statement best reflects Section 178(4)?

The clause fails. Section 178(4) requires the NRC to ensure remuneration relates clearly to performance benchmarks and that pay for directors, key managerial personnel and senior management balances fixed and incentive components reflecting short and long-term objectives. A purely fixed, result-independent scheme does not satisfy this.

  1. AThe clause is valid because reasonable and sufficient pay is the only requirement
  2. BThe clause is valid since the policy governs only directors, not senior management
  3. CThe clause fails because the policy must be approved by the Stakeholders Relationship Committee
  4. DThe clause fails because pay must clearly relate to performance benchmarks and balance fixed and incentive payCorrect

Explanation

Section 178(4)(b) requires a clear link of remuneration to performance and (c) a balance between fixed and incentive pay covering short and long-term objectives, for directors, KMP and senior management. A wholly fixed, result-independent scheme violates both.

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