Board Practices

Incentives and Governing Risks

image of Board Practices
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. 


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.


This is a required field
Please enter a valid email address
Approval was a Success
Invalid data
An Error Occurred
Approval was partially successful, following selected items could not be processed due to error