Board Practices
Incentives and Governing Risks
This publication examines how effectively boards manage to align executive and board remuneration with the longer-term interests of their companies. This is a major and ongoing issue in many companies and one of the key failures highlighted by the financial crisis. Aligning incentives seems to be far more problematic in companies and jurisdictions with a dispersed shareholding structure since, where dominant or controlling shareholders exist, they seem to act as a moderating force on remuneration outcomes.
The reader will learn about the effectiveness of boards in fulfilling their obligation to align executive and board remuneration with the longer term interests of their companies.
The reader will learn about the effectiveness of boards in fulfilling their obligation to align executive and board remuneration with the longer term interests of their companies.
United Kingdom
Review of Board Practices for Managing Incentives and Risks
This chapter on the United Kingdom is based on detailed responses to a questionnaire provided by the United Kingdom, together with independent research by the Secretariat including missions to the United Kingdom. The chapter describes:
- the corporate governance framework influencing board oversight of the remuneration and incentive systems and its compatibility with corporate objectives;
- the market and corporate context influencing whether incentive structures are in the long term interest of the company and its shareholders; and
- how boards influence incentives and what role is played by transparency and by shareholders.
Within these areas, the discussion is based on the individual principles relevant to the review. The chapter is intended to be descriptive and not normative in character. The second part of the chapter is devoted to conclusions about the United Kingdom.