One non-executive position that is often viewed with an exceptional amount of ambiguity is the assignment to the remuneration committee. The remuneration committee is a board within the board that is established for the purpose of ensuring that all remuneration arrangements work within the structure of the business strategy for the purpose of the motivation, retention and recruitment of high-level executives within a company.
Understand the Process
There are many non-execs that will have to answer that enigmatic question: Is being on the remuneration committee a headache or an opportunity. The truth is that there is no cut and dry answer to this question. Honestly, a considerable portion of this dilemma is settled within the personal perspective of the non-executive that is standing on the threshold of the opportunity.
One thing that is for certain is that the work that is performed on this committee can be extremely detailed and challenging. There are many hurdles that have to be overcome in order to maintain a sense of integrity and a high ethical threshold. The primary focus is on ensuring that the remuneration packages that are offered to senior executives are based on a number of key variables, such as their merit, competence, qualifications, etc. Additionally, it is paramount to consider the company’s primary compensation strategy. For example, if a company has a compensation strategy that places a significant amount of gravity on performance, and they set up complex bonus structures over base salary, to offer an executive an extremely high base salary that is not inextricably bound to performance would be out of line in most instances.
In the current culture in which there is a significant amount of questions surrounding the performance and pay of high level executives, it is paramount that remuneration committees are careful in constructing compensation packages for executives. As a non-exec, working on this committee has both, advantages and challenges. One of the most effective methods of impacting a company bottom line is in effectively managing its payroll. This puts a non-exec in a position to make a solid impact. If this was the only issue that had to be considered, the answer to that enigmatic question of headache verses opportunity would actually be a no-brainer. Unfortunately, it is not that simple.
Some of the greatest challenges associated with being on the remuneration committee are directly associated with internal pressures that come from high-level executives that are lobbying for exceptional compensation packages for those whom they may know or support. It is not uncommon for CEOs to exert pressure on the committee to create a specific compensation package for one or more executives. The key for non-execs is to find a way to remain a team player while maintaining their integrity in representing the shareholders
In truth, it all boils down to perception and engagement. For the person who is able to look past the challenges that are presented, being on the remuneration committee definitely offers some unique opportunities. Let me ask you a question, what is your view on it?