Company law Essay Example | Topics and Well Written Essays - 2000 words

Company law - Essay Example The committee must also make sure that remuneration arrangements strictly abide by the regulatory bodies’ requirements and meet the expectations of shareholders as well as the wider employee population (ibid). Earlier, controversial director remuneration increases in the United Kingdom were widely criticised and as a result, the UK government framed a set of regulations to control executive director remuneration. According to the Code of Best Practice suggested by the Greenbury committee, the remuneration committee must be comprised of non executive directors. The Greenbury committee also directs to completely disclose the remuneration policy as well as directors’ individual remuneration package. The UK Corporate Governance Code 2010 or simply the Code, which is a set of some good corporate principles, describes various procedures involved in setting executive director remuneration in public limited companies. Section D.1 of the UK Corporate Governance Code 2010 states that the level of remuneration should be sufficient enough to attract, motivate, and retain executive directors and thereby run the company successfully. At the same time, the level of executive remuneration must not be more than necessary. The section D.1 specifically says that â€Å"a significant proportion of executive directors’ remuneration should be structured so as to link rewards to corporate and individual performance† (The UK Corporate Governance Code, 2010). The Code continues that elements of performance-based executive remuneration must focus on the company’s long term success. In addition, the remuneration committee has to decide whether to structure their remuneration policy relative to other companies; however, the committee must consider the risk of higher levels of remuneration with no corresponding performance improvement. The committee should also consider pay and employment conditions while making decisions on annual salary increases. The Se ction D.2 deals with procedures involved in setting executive directors’ remuneration. According to this section, â€Å"there should be a formal and transparent procedure for developing policy on executive remuneration and for fixing the remuneration packages of individual directors† (The UK corporate governance code (The UK Corporate Governance Code, 2010). Referring to Main principles of the UK corporate governance code (genius methods, 2010) section D.2 clearly tells that no executive director must not be allowed to involve in setting his/her own remuneration (ibid). The remuneration committee has the obligation to confer with the chairman and/or chief executive regarding the effectiveness of the proposal framework structured on the executive director remuneration. The committee also has the responsibility to appoint consultants in order to effectively set a potential executive director remuneration policy. If there is an involvement from the part of executive direc tors of top management in advising or assisting the remuneration committee, due care must be exercised to timely identify and avoid conflicts of interest. It is the duty of the board chairman to ensure that the company effectively communicates to its shareholders regarding various aspects of the remuneration proposal. The section D.2.1 of the Code tells that there should be at least three (it can be two in case of smaller