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.

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.