Remuneration Committee
Also known as the compensation committee, a remuneration committee is a subcommittee of a company’s board of directors responsible for overseeing the pay, bonuses, and benefits of the executives and senior management. This also includes termination pay, performance-based incentives, and other executive compensation or financial arrangements. Since the board may lack a dedicated focus on executive pay structures, the remuneration committee is created to ensure fair and competitive compensation practices for top leaders that align with the company’s long-term goals.
What does a remuneration committee do?
How much a company is able and willing to compensate its executives reflects its values and commitment to attracting and retaining top talent. That is why the role of the remuneration committee, as outlined in its charter, is crucial to develop the best compensation package they can offer.
Depending on several factors, their responsibilities may differ from one company to another, but key duties include:
- Setting Executive Pay Package: The committee establishes and recommends the best salary package based on company performance, industry benchmarks, and individual achievements. They are also expected to set clear performance metrics to link bonuses and long-term incentive plans (LTIP) to specific results.
- Ensuring Fair and Transparent Compensation Practice: The committee sees to it that compensation practices are fair, legally compliant, and aligned with diversity, equity, and inclusion standards. In an effort to uphold transparency, they must be prepared to disclose these practices to stakeholders (in some cases, publicly) through regular reports.
- Consulting with External Advisors: To maintain competitive pay structures, the committee may turn to consultants, in-house or third-party, for benchmarking and market comparisons.
- Collaborating with Other Committees: It takes a village to keep a business afloat. Thus, they must work closely with other committees, such as nominating and audit committees, to ensure that CEO succession matches remuneration standards.
How to Choose Members of the Remuneration Committee
While almost any board member can sit on the remuneration committee, a proper vetting process must verify that the selected members possess the necessary expertise and judgment to fulfill their roles effectively. Here are vital steps to follow when choosing members:
- Choose Independent Non-Executive Members: To avoid conflict of interest, the role must be given to independent non-executive members with relevant experience and expertise in finance or human resources.
- Appoint an Independent Chair: Instead of appointing an internal executive, designate an independent chairperson to lead the committee for fair and unbiased oversight.
- Ensure Diversity of Skills and Perspectives: Select members with different backgrounds and bring unique perspectives to the table—while ensuring expertise in remuneration remains a non-negotiable requirement. This allows the committee to explore all possibilities and guarantee well-balanced decisions.
Frequently Asked Questions
How many members are there in a remuneration committee?
The final number depends on the board’s size and other factors, but an effective remuneration committee typically comprises three to five members. It is recommended to have an odd number of members to avoid ties.
How often should the remuneration committee meet?
The remuneration committee generally meets at least two to three times per year. But, additional meetings may be scheduled as needed, particularly when reviewing packages or making recommendations for annual bonuses and LTIPs.