Corporate Governance

ISSN :
2077-6535 (en ligne)
ISSN :
2077-6527 (imprimé)
DOI :
10.1787/20776535
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Board Practices

Board Practices

Incentives and Governing Risks You do not have access to this content

Anglais
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Auteur(s):
OCDE
Date de publication :
02 août 2011
Pages :
144
ISBN :
9789264113534 (PDF) ; 9789264113510 (imprimé)
DOI :
10.1787/9789264113534-en

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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. 

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    Foreword
    This report presents the results of the first thematic peer review based on the OECD Principles of Corporate Governance. The report is focused on board practices related to setting incentives and governing risks. It covers 29 different countries, including in-depth reviews of Brazil, Japan, Portugal, Sweden and the United Kingdom.
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    Executive Summary
    In many countries around the world the ability of the board to effectively oversee executive remuneration, as recommended by the OECD Principles of Corporate Governance, appears to be a key challenge in practice and remains one of the central elements of the corporate governance debate. The nature of that challenge goes beyond the level of executive and director remuneration, even though that is the focus of much political discourse, to encompass how remuneration and incentive arrangements are aligned with the longer term interests of the company. Of particular importance is the connection between remuneration structure and company risks that the board needs to manage.
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  • Ouvrir / Fermer Cacher / Voir les résumés Overview of Board Practices for Managing Incentives and Risks

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      Aligning Executive Interests with the Long-term Interest of the Company
      The ability to effectively oversee executive remuneration is a central element of the current corporate governance debate. In responding to this and other corporate governance challenges, the OECD’s Corporate Governance Committee launched a peer review process designed to facilitate the effective implementation of the OECD Principles of Corporate Governance and to assist market participants and policy makers to respond to emerging corporate governance risks. The process builds on Principle V.A.4. of the OECD Principles. This principle recommends that the board should fulfill certain key functions including "aligning key executive and board remuneration with the longer term interests of the company and its shareholders". This chapter discusses the market environment, the legal and regulatory frameworks and responses to remuneration and board practices, in particular, the use of remuneration consultants and board members’ responsibility for shareholder engagement.
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      Best Board Practices for Overseeing Executive and Director Remuneration
      Often, legislators’ and regulators’ capacity to influence remuneration outcomes via hard means is quite limited, and very few jurisdictions have legislated specific measures to control the level of executive and director remuneration. The OECD Principles of Corporate Governance provide a strong framework for guiding policy actions that improve the capacity of firm governance structures to produce appropriate remuneration and incentive outcomes. These can roughly be characterised as i) measures to improve internal firm governance (and, in particular, fostering arms-length negotiation through mandating certain levels of board independence); ii) improved disclosure to shareholders on remuneration outcomes, and better explanation of how incentive based remuneration aligns with company performance; and iii) providing mechanisms to allow shareholders to have a means of expressing their views on director and executive remuneration. Remuneration structures, board practices to be implemented and policy options to provide informed shareholder engagement are also discussed in this chapter.
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  • Ouvrir / Fermer Cacher / Voir les résumés In-depth Country Reviews of Board Practices: Managing Incentives and Risks in Five OECD Countries

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      Brazil

      This chapter on Brazil is based on detailed responses to a questionnaire provided by Brazil, together with independent research by the Secretariat including missions to Brazil. 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 Brazil.

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      Portugal

      This chapter on Portugal is based on detailed responses to a questionnaire provided by Portugal, together with independent research by the Secretariat including missions to Portugal. 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 Portugal.

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      Sweden

      This chapter on Sweden is based on detailed responses to a questionnaire provided by Sweden, together with independent research by the Secretariat including missions to Sweden. 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 Sweden.

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      United Kingdom

      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.

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