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ACCA Applied Knowledge · Financial Accounting · Duties and responsibilities of those charged with governance

Which of the following features of a board is MOST consistent with the recommendations of typical corporate governance codes on board composition and independence?

A remuneration committee of independent non-executive directors setting executive pay matches governance code recommendations, because it prevents executives from deciding their own rewards. Combining chairman and chief executive roles or having executives dominate the audit committee weakens independence and oversight.

  1. AThe chief executive also acts as chairman to ensure unified leadership
  2. BThe audit committee is composed mainly of executive directors who know the business best
  3. CNon-executive directors are never involved in setting executive remuneration
  4. DA remuneration committee made up of independent non-executive directors sets executive payCorrect

Explanation

Governance codes recommend that executive pay be set by a remuneration committee of independent non-executive directors, avoiding executives deciding their own pay. Combining the roles of chairman and chief executive, executive-dominated audit committees and excluding non-executives from pay-setting all conflict with typical code recommendations.

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