THE LEVEL of knowledge held by directors when it comes to remuneration of executives and other employees is thought to be well below that needed for them to effectively carry out their responsibilities
THE LEVEL of knowledge held by directors when it comes to remuneration of executives and other employees is well below that needed for them to effectively carry out their responsibilities.
Recent Australian research has found there are many concerns about what directors really understand when they sign off the salary packages for executives.
“People I interviewed were quick to say that they thought that while directors were skilled and knowledgeable about business in general, their understanding of the increasingly complex area of remuneration was not what it could, or should, be,” said Wendy Attwater, a consultant who specialises in remuneration and reward.
The research showed that directors in those companies where the board was actively involved in setting a clear remuneration strategy were more confident in tackling the tricky issues that sometimes arose.
One of the key reasons for doing this was to ensure that “if the shareholders give us a hard time” the directors had a clear understanding of their underlying strategy and could more easily answer questions and defend their position, according to one respondent.
Corporate governance guidelines recommend that boards have a remuneration committee that meets regularly to set remuneration policy, sign off payments and so on.
However, Attwater explained that directors are already busy, and getting busier, and so being able to devote sufficient time to remuneration issues is a real challenge for boards of directors today.
“For this reason many companies are calling in consultants to help them carry out their responsibilities more efficiently,” she said.
Education in this sometimes complex and often very emotive area is crucial for directors to keep up to date on trends in the world of remuneration, Attwater said.
“I have found that those boards that I have worked with to provide regular briefings on the latest trends and issues are more confident in working with the consultants, even if it’s just that they now know what questions to ask.”
The research highlighted the need for directors to sharpen their skills in this area and put remuneration strategy back on the board’s agenda.
