To help directors who are stepping up to chair the Remuneration committee, we’ve published this comprehensive checklist to prompt your thinking and help to proactively identify issues. The questions will help even if you are an experienced audit chair and have performed the role before, and/or if you have already served on this board or committee for a while.
The questions below provide comprehensive coverage across:
- Considering the challenge ahead
- Understanding structure
- Building the calendar
- Meeting process
- Managing the flow and quality of discussion in meetings
- Setting remuneration policies
- Governing board remuneration
- Reporting to stakeholders
The questions are designed to start you thinking about issues that you may have noticed but not yet considered addressing as well as to help you to notice issues of which you may currently be unaware. The answers are not necessarily good or bad; they should reflect the current and desired state of your unique board and committee.
Don’t ask all of the questions. Trust yourself to recognise and ask the most important ones. You can return to the list at intervals to consider your progress. For example:
- When you, personally, first think about becoming Remuneration Committee Chair
- Preparing for your first meeting with the committee
- Preparing your first report to the board
- Preparing for the AGM
At the end of the check list, we have listed some references that you may wish to investigate for additional reading on the topic. We have also included some suggestions for putting into action the ideas that result from considering the checklist.
Considering the challenge ahead
1. What attracts you to the Remuneration Committee chair role? What do you dislike about it?
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2. Why did the board appoint you to the role?
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3. What are the board’s explicit expectations of you? How will you verify any unspoken expectations?
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4. Why is the former committee chair no longer in the role?
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5. Is the company under pressure from external stakeholders over remuneration?
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6. Are your remuneration practices at leading or generally accepted practice?
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Understanding structure
7. Who are your committee members? Are they all board members or do you have any external experts who are not directors? Is the board chair on your committee?
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8. Have you reached an understanding of what must be decided and done by the committee, what will be decided by the committee and the board working together, and what will be decided by the board and done by the committee?
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9. Are you happy with the terms of reference or charter? Are any of your desired changes urgent? Does your remit include nominations or succession planning?
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10. Which executives attend the committee by standing invitation? Do you want to increase or reduce their number?
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11. What other committees are there and do you need to work together (especially with Human Resources, Culture and/or Safety)?
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12. What company policies relate to remuneration? How are these kept up to date?
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13. How do staff and the CEO view your remuneration practices and policies?
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14. Does the board have an explicit remuneration philosophy?
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Building the calendar
15. Do the committee meetings occur on a regular schedule or only when issues arise?
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16. Is it more convenient for the board to have the meetings well separated from board meetings - so that minutes are available and papers written for any matters referred from the committee to the board - or is it more convenient to have the audit and board meetings adjacent in time to optimise travel time and expenses?
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17. Is there a comprehensive board and committee calendar that shows the key topics on each meeting agenda?
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18. Are any meetings too overloaded and needing to shed work to other meetings. Should meetings be extended and/or supplemented?
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19. Are any meetings too ‘light’ and needing more substantial items on the agenda? Do you want to cancel any meetings?
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20. Are there any topics not on the agenda that should be?
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Meeting process
21. What is the current process for setting the agenda? Do you want to change it?
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22. How do committee members contribute items for the agenda?
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23. Are the papers meeting your committee’s needs? Are they clear, long enough but not too long, free from jargon, and delivered in a timely fashion so directors can read and consider them before the meeting?
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24. What is the process for members to ask questions about the papers before meetings? Who needs to know when questions are asked? Who needs copies of the answers?
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25. What is the process for approval of the committee minutes?
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26. Are conflicts of interest declared and managed?
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27. Do meetings run on time? What are the most frequent causes of ‘time stress’? Can these causes be avoided or prevented?
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28. Do committee members work collaboratively with management? Do they add value?
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29. Do your minutes reflect the key considerations as well as the decisions of the committee? Do you keep a register of ‘matters arising’?
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30. Do you provide a verbal report to the board and engage with their questions at the board meeting after each committee meeting?
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Managing the flow and quality of discussion in meetings
31. Does the committee spend the right amount of time on the right things? What changes (if any) will you make to agenda time allocation or order?
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32. Do meetings run on time? What are the most frequent causes of ‘time stress’? Can these causes be avoided or prevented?
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33. Do committee members work collaboratively with management? Do the committee members add value?
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34. Have discussions historically been introduced with enough context to allow director contribution and participation? How can you better introduce each agenda item so the board/committee members are ready to contribute to the discussion?
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35. How will you manage director contributions? Are there members who are more inclined to contribute to discussions, and may be too active? Are there others who will generally need to be invited to contribute or to strengthen their contribution?
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36. In what format and frequency will you provide feedback to directors on their contribution? What has the historical format and frequency of chair-director feedback been?
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37. How will you ensure robust discussion on difficult issues? When and how will you sound out board members and management on their perspectives?
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38. What was the previous chair’s process of preparing for committee meetings? Did they sound out board members and management to understand perspectives and difficult issues?
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39. What will your process of preparation for facilitating each meeting be? How will you sound out and understand perspectives to ensure robust conversation?
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40. How will you monitor your contribution to ensure you are a facilitator and not an opinion leader? Are there trusted voices on the committee who can reliably provide feedback if you are inserting yourself into the conversation too much?
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41. How well are you able to synthesise a discussion to summarise the committee’s view and next steps? What changes (if any) would other board members recommend to the way you synthesise and summarise conversations?
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42. How are next steps and accountabilities tracked on the committee? Are actions commonly summarised and documented by the individual responsible? The chair? The company secretary?
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43. How will you engage with relevant members of management to prepare for committee discussions? Will you adopt a consistent set of calls / check-ins prior to each meeting?
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44. How have management historically been engaged to prepare for and participate in the meeting? Are there standards of behaviour (either stated or unstated, for board and/or management) that need to change to promote healthier discussion?
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45. If papers are introduced on a “taken as read” basis, are they actually taken as read? Does this expectation need to be changed or clarified?
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Setting remuneration policies
46. Are you confident that the board’s remuneration philosophy is supported by the company’s remuneration policies and practices?
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47. Are delegations on hiring and remuneration clear and unambiguous?
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48. Do you have a process to ‘cascade’ the board’s changing remuneration philosophy into the company’s policy framework?
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49. Do you benchmark your policies against peers or good practice? How do you benchmark your policies, practices and remuneration against appropriately sized peers in the industry?
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50. Which staff are involved in setting the board’s remuneration?
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51. Are any staff involved in setting their own remuneration?
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52. How do you handle conflicts of interest when setting board and senior executive remuneration?
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53. How do you balance short- and long-term incentives to guide and reward performance?
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54. What are the practices for paying incentives and providing notice under good, bad and ill-defined circumstances when executives or directors leave?
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Governing board remuneration
55. Does the board set director fees and other remuneration elements or is this performed by an external agency
1?
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56. What boards have similar workloads to your own and how do they remunerate directors?
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57. Do you pay all directors the same or do you remunerate depending on ‘market forces’, committee service, meetings attended or other factors?
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58. Do you have enough room in the pool for board remuneration to appoint an additional director if someone with needed skills became available?
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59. Does your committee govern the creation and upkeep of the board skills matrix or is that done by the board?
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60. How do you ensure that identification of necessary skills for the board is not limited by the experience of the current directors?
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Reporting to stakeholders
61. When did you last take a recommendation on the pool for board remuneration to your members/shareholders at a general meeting?
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62. When did you last speak with major stakeholders about the level of board and senior executive remuneration? What were their concerns, if any? Have they been addressed or is the conversation continuing?
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63. Are you confident that you have accurate data for reporting to stakeholders on issues such as the ‘gender pay gap’?
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64. Are stakeholders genuinely concerned about remuneration or are they using remuneration to signal their unhappiness with other issues? Can you engage with the board to resolve those other issues?
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Taking action
Read the questions and note which ones you can confidently answer. Make a record of any actions that you wish to take to help answer any questions that you were not confident about. Schedule those actions as immediate, before the first committee meeting, after the first committee meeting, within the first year.
Before the first committee meeting
- Review your action list and ensure that you have not omitted any important actions due to time pressure or other distractions.
- Create a detailed schedule of the actions for the next two months.
- Review your performance in the first month with the chair and board. Agree targets for the next two months. Discuss any questions to which you have not been able to generate a satisfactory answer.
After the first committee meeting
- Review your responses to the questions about the calendar and running meetings. Are you happy that your initial responses were correct? Now that you have been through the process once, what would you like to change?
After the first year:
- Revisit all the questions. Which ones did you correctly answer? What new insights do you have?
- How will these new insights alter your committee’s interactions with the board? How will they change the committee operations? How will they change your relationship with the auditors?
Additional reading and reference sources
Agency Theory and Executive Pay: The Remuneration Committee’s Dilemma, A Pepper, Palgrave Pivot, 2019
Executive Appointments and Disappointments, J Colvin, J Turnbull and M Blair, Australian Institute of Company Directors, 2013
Remuneration Committee Guide, CG Guides for Boards (Singapore), 2017
The ICSA Remuneration Committee Guide, S O’Hare, KPMG/ICSA, 2006
The Remuneration Committee as an Instrument of Corporate Governance, G Brian, M Johnston and J Johnston, Hume Occasional Papers, 2009