Sawaba Telco Ltd is a recently listed local company that is in the process of reorganizing its corporate governance structure to reflect its status as a public company. At the first board meeting after the listing, the board chairman raised the issue of setting up of sub-committees of the Board. The Board agreed to start with two sub committees which are Remuneration Committee and Audit Committee. The board chairman is unsure how the remuneration committee of the board should be composed, its functions and other related matters. As a corporate governance consultant, the board chairman has written to you for advice on various issues regarding the remuneration committee.
Required:
Write a report to the board chairman advising him of the following:
i) The composition of the Remuneration Committee. (3 marks)
View Solution
The remuneration committee should comprise of a majority of non-executive directors. The executive directors who are members of the committee should exclude themselves from deliberations concerning their own remuneration.
ii) THREE functions of Remuneration Committee. (3 marks)
View Solution
- Establishing a formal and transparent procedure for developing policy on executive remuneration;
- Ensuring that a proper system of long term and short term compensation is in place to provide performance oriented incentives to management;
- Scrutinising executive contracts with a view to ascertaining any inordinate losses the corporate body may be liable to incur in the event of an early termination of services.
iii) THREE factors to be considered in the remuneration of executive and non-executive directors. (6 marks)
View Solution
- Level of experience – the remuneration levels of directors should reflect experience and the level of responsibilities undertaken by the particular director concerned.
- Exclusion of concerned director – the board as a whole should determine the remuneration of non-executive directors with the individuals concerned excluding themselves from deliberations of the matter.
- Commitment of non-executive directors – the remuneration of non-executive directors should be fixed at a level that will ensure their commitment to the duties and obligations they are required to discharge.