Governance, Risk and Ethics

Board of Directors, Board Committees, Directors’ Remuneration

THE BOARD OF DIRECTORS
Chairman and Chief Executive
• Role of chairman and CEO are following:
BOARD COMMITTEES
• A committee is not given decision-making powers.
• Its role is to monitor an aspect of the company’s affairs
• report back to the board
• make recommendations to the board.
The main board committees

Risk
Remuneration Nominations
Audit committee management
committee committee
committee
Responsibilities of Board Committees
Remuneration committee: whose responsibility is to consider and negotiate the
remuneration of executive directors and senior managers
Duties:
• The committee should agree with the main board a policy for the remuneration
of the chairman, CEO, other executive directors and any other designated senior
management.
• Where there is a performance-related pay scheme, the committee should decide
the targets for performance.
• The committee should decide the pension arrangements for each executive
director.
• The committee should approve the design of any new share incentive plan.
Audit committee: whose responsibility is to monitor financial reporting and auditing
within the company
Duties:
• Oversee financial reporting and internal controls.
• Review the scope and outcome of the audit as well as the objectivity of the
auditors.
• Provide a useful bridge between both internal and external auditors and the
board.
• Oversee the arrangements for whistle-blowers.
• Assess the systems in place to identify and manage financial and non-financial risks
in the company.
Nominations committee, whose responsibility is to identify and recommend individuals for
appointment to the board of directors.
Duties:
• Recruit new directors after considering the composition of the board in terms of the ratio and
number of executive and non-executive directors as well as the diversity in knowledge and
experience.
• Establish and review succession plans for the directors.
• Remove incompetent or unsuitable directors.
• Provide new board members with a comprehensive induction to board processes and policies and
to their new role.
• Monitor and appraise each individual director’s performance, behavior, knowledge, effectiveness
and values.
• Identify development needs and training opportunities for existing and potential directors.
Risk management committee, where the responsibility for the review of risk
management has not been delegated to the audit committee.
Duties:
• Champion and promoter of enterprise risk management across the group.
• Oversee the implementation of the risk management policy.
• Provide quarterly reporting and update on key risk management issues to the board.
• Review enterprise risk profile for effectiveness of management of risks.
• Evaluate any new risks identified by operating management.
• Ensure that all action plans are acted upon and addressed.
• Establish monetary threshold and nature of proposed investment that require risk
committee’s evaluation and endorsement before submitting to the board.
DIRECTORS’ REMUNERATION
The components of a remuneration package are commonly:
• a basic salary.
• one or more annual cash bonuses, linked to the achievement of
specific performance targets.
• free shares in the company or share options.
• pension rights or a contribution to a pension fund for the director.
Components of Directors’ Remuneration
Basic Salary:
• Purpose of a basic salary is to give the director a guaranteed minimum
amount of pay.
• The size of basic salaries varies between companies, and depends to some
extent on the salaries paid to similar directors in comparable companies.
also dependent on the extent to which directors and senior executives
have an opportunity to boost their earnings through incentive schemes.
• A lower basic salary might be acceptable to a director who expects to
receive large cash bonuses or equity awards.
Short-term incentives: bonus
• The bonus payments will be linked to one or more key performance
indicators. The targets may include:
i. performance indicators for the business as a whole (such as a target for
earnings per share) and/or
ii. personal targets for the individual executive. These might be financial
targets, but might also be non-financial targets.
• E.g. a sales director might receive a cash bonus of 15% of his basic salary if
the company achieves its target profit for the year, and an additional 15%
cash bonus if annual sales increase by at least 5% above the previous year.
Long-term incentives: share plans:
Long-term incentive schemes usually take the form of awards of either
• share options or
• fully-paid shares in the company
Share options:
A share option gives its holder the right, at a future date, to buy shares
in the company at a fixed price.
e.g. a director might be given 20,000 share options, giving him the right
to buy 20,000 new shares in the company at a fixed ‘exercise price’ of,
say, £6.40 on or after a specified date in the future.
• If the company’s share price increases, the director will be able to
exercise the share options and buy new shares in the company at a
price below their current market price. If he wishes to do so, he can
sell his new shares, and make an immediate profit.
• company will appoint a committee to decide how many share options
should be granted to each individual.