Board Practices

Incentives and Governing Risks

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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. 


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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