Being a member of a Remuneration Committee requires Directors to be well informed on a broad spectrum of remuneration issues that affect employees at all levels of the organisation.
The breadth and depth of the role will be influenced by the ownership and maturity of the organisation. Remuneration Committees exist in large private companies, corporatised government entities, international subsidiaries, joint-venture entities, not-for-profit organisations and unlisted public companies to nominate a spread. Not all of these organisations would be subject to the Corporations Act; the majority are.
The Chairman of the Remuneration Committee must expect greater demands on his or her time, as they will be accountable for ensuring the Committee is well-informed and in a position to exercise sound judgement on the issues it is required to address.
Key tasks of a remuneration committee are:
- The review and determination of Directors fees.
- The review and determination of the quantum and structure of CEO and key management personnel (KMP) reward, including fixed remuneration, annual incentives and long term incentives. See our articles on annual incentives and long term incentives for more detail.
- Approval of equity- and cash-based annual and long term incentive plans and documentation of plan rules. Considerations will include the effect of plans on dilution, taxation and the organisation’s cost as reflected in its profit and loss statement.
- The approval of appointment conditions, contractual entitlements and termination conditions for KMPs including the CEO.
- Approval of target performance levels for annual and long term incentive payments, taking into account expectations of the market and conditions facing the organisation.
- Decisions on the appropriateness of annual and long term incentive payments for KMP, including the exercise of discretion where considered necessary.
- Retrospective consideration of prior-year KMP incentive payments given up-to-date organisation performance information, for the purposes of maintaining the integrity of malus or clawback clauses.
- Awareness and compliance with remuneration-related legislation as well as guidelines and regulations set by the ASX Corporate Governance Council and industry specific regulators (for example APRA for the financial services industry). Organisations within government will be required to manage matters in accordance with relevant Acts governing the employment of individuals including executives in government-owned enterprises.
- Oversight and approval of a published remuneration report, requiring the committee to liaise with the organisation’s remuneration advisors, auditors, actuaries and other specialists including communication and investor relations specialists.
- Oversight of a proportion of the Notice of Meeting for shareholder meetings and the preparation of the explanatory notes.
- Continuous engagement with various stakeholders on remuneration matters including analysts, key shareholders, institutional investors and proxy advisors. In many cases this will require a large investment of time by the Committee Chairman.
- For organisations with a broad geographic spread across many jurisdictions, the approval of certain conditions of employment when executives are relocated internationally or recruited internationally.
- General overview of employment policies, which may include engagement in or oversight of progress with enterprise-based agreements for the bulk of the workforce.
- Consideration and discussion of the effect of current remuneration policies on an organisation’s culture and capabilities. (The Committee may need to provide strategic direction on issues such as gender equality, risk management, talent acquisition, motivation and retention.)
- For Boards without a nomination committee, the remuneration committee may be involved in Board nominations and succession planning for the Board and CEO.
- Private companies preparing for listing have a particular role and obligations in preparation for an IPO in establishing the policy framework and practices of the organisation and ensuring through prospectus disclosure that future shareholders are fully informed on the role of the Committee, the remuneration structure and levels of reward for KMPs including the Board.