Remuneration Committee

Introduction to Remuneration committee

The remuneration committee is the cornerstone of the UK Code's attempt to make sure that directors' rewards are suitable. The UK Code says that this committee should be accountable for setting remuneration for executive directors and the chairman. The committee should contain completely of independent, non-executive directors. For larger businesses there should be minimum three directors and for smaller businesses at least two. The UK Code also says that no director should be permitted to find out his or her own level of rewards.

Even though this committee is meant to stop executive directors from being over-rewarded, critics indicate that in recent years directors' pay and advantages have increased at a much faster rate than comprise corporate profits and sales (or the pay and advantages in other occupations). Additionally, studies have displayed that the relationship between directors' pay and performance is not a very clear one.

An inherent difficulty of the remuneration committee is that non-executive directors are accountable for the rewards of executive directors. As we described earlier that nonexecutive directors are frequently executive directors of other companies and thus there is a danger that they will be sympathetic to a high-reward culture. There might also, though, be problems with the method in which the committee goes about its business.

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