Skip to content

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

Tavish Energy plc has a remuneration committee. A shareholder complains that the chief executive, Ravi Kessler, sits on the committee and takes part in deciding his own bonus scheme. Which governance weakness does this most directly show?

The weakness is a lack of independence. Remuneration committees should be made up of independent non-executive directors so that executive pay is set objectively. A chief executive helping to decide his own bonus is a clear conflict of interest, which weakens the credibility of the pay-setting process.

  1. AThe committee lacks independence, because an executive is setting his own pay, creating a conflict of interestCorrect
  2. BThe committee is too small to meet the requirement for diversity of skills
  3. CThe committee is wrongly focused on short-term performance rather than long-term strategy
  4. DThe committee is duplicating the work of the audit committee

Explanation

A remuneration committee exists to set executive pay free from executive influence. A chief executive taking part in decisions about his own bonus is a conflict of interest and undermines independence. The size, time horizon and duplication points are not shown by the facts given.

Did you get it right without looking?

One question tells you little. A timed set on The board of directors shows your real accuracy, how long you take and where you lose marks.

Practise The board of directorsFree diagnostic mock

More The board of directors questions