Hi

During the studies I came across that Greenburys report contain a provision stating that Executives directors salary should be determined by the remuneration committee which should consist of independent non executive directors.

So wouldnt this impair the independence of the executive directors ? As they would try to keep the NEDs happy so that they keep earning a smooth pay and other benefits?

If that is the case then the Remuneration committee consisting of NEDs should go against the case of good corporate governance , isnt?

Looking forward for the reply.

Thanks

Hi,

I can see from where you are coming but the point is Remuneration committee consists of only independent NEDs which are not involved with the management of the company. They are appointed to make sure that exectives are doing their job properly and then they make up their mind about the remuneration policies(no exective director is involved). In practice, might be it takes place what you are stating and thats why they are being accused as "old boy network" but corporate governance rules are there to diminsh all these non ethical issues.

Regards,
Ayesha.

Hi ayesha

u didnt understand my question !

i asked that wouldnt ED try to make happy the NED by eg. obeying to all there critism right or wrong just to enhance there pay?

Hello Assad, I agree with you...

I know executive directors will try to keep NEDs happy to earn good salaries and benefits...

But what can you do if it happens.

Other way is to let executive directors decide their own salaries .If we let this happen then it is 100% confirmed that they will pay themselves unnecessarily.

So having NEDs reduces this to happen. But in real life this could happen what you are saying...Although it reduces the likelihood of necessary salaries and bonuses but it doesnt eliminate it fully...


To reduce this, it is said that NEDs should be INDEPENDENT. It means they should not be friends of executive directors and thays why NEDs should be changed every year to avoid them becoming friends.


Hope this helps

Yes , also one of my friend got a good point that NEDs are hired by Shareholders and are independent of the operations of company so they will obviously not want to pay the directors excessively.

mmm ED try to keep ned happy? i dun think so. the remuneration committee need to follow mkt rate and the individual skill, knowledge and experience to the director to design a fair package for ED when they first join. if the ED not happy in the first place they should decline the offer. Basic salary must be high enough to recruit best talent but avoid paying more then that for that purpose... the subsequent year will be stuff like bonus, share option and fee...which is link to performance of individual and company.. therefore the ED will go all out to defend their view becos if they really confident that their strategies will result in better performance overall. why must they just for the sake of basic salary keep ned happy... did i get ur meaning correctly???

not to forget that there is a chairman to act as the god father and easing tension. chairman is the justice bao hahaha.. provided independent...which must be according to the combine code.. actually chiarman job is the worst.. hamburger btw the ned n eds...