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ACCA Strategic Professional · Advanced Performance Management · Performance and reward

Under good corporate governance practice, which arrangement best supports the independence of the body that sets executive pay at a listed company?

A remuneration committee made up of independent non-executive directors best supports independence. They have no personal interest in executive pay outcomes, so they can set rewards linked to performance objectively and avoid executives influencing their own remuneration.

  1. AA remuneration committee composed of independent non-executive directorsCorrect
  2. BA remuneration committee chaired by the chief executive officer
  3. CPay decided by the finance director with CEO approval
  4. DPay set by the executives themselves subject to annual audit

Explanation

Independent non-executive directors have no personal stake in executive pay, which reduces conflicts of interest and supports objective decisions. Involving the CEO or executives in setting their own pay undermines independence.

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