Corporate Governance Law The Executive Pay - 2686 Words

Introduction In the present days, corporate governance law is ultimately important and is influential. Particularly, the executive pay has long been a topic of interest among the legal profession for many years. As the companies need to attract the director who has skills and experience to manage the company’s resource and make profit for the company, offering high remuneration to the director could incentivize them to use maximize proficiency and experience to control the company and not to use the company’s resources to benefit themselves. Therefore, it can be argued that the remuneration for executive directors is an important factor to attract the person with the right skills to control the company. However, the executive†¦show more content†¦This essay will critically appraise the issue of unsuitable executive pay by determining the relevant principles and factors related to the executive remuneration and analyze the most plausible solutions to the proble ms. Remuneration committees The remuneration committee is one of the legal strategies which the company applied to ensure that the remuneration paid to the executive director is not managerial agency cost. The UK Corporate Governance Code (2010) recommends that the company should set up a remuneration committee with three independent non-executive directors in order to take charge of pay arrangements. The code sets out the basic role and composition of the remuneration committees; best practice on membership and way the committee working. Although, there is no statutory require companies to set up a remuneration committee, most of the big companies in UK apply this recommendation. Furthermore, this code provides the option that the chairman of the board can be a member of this committee. However, although the code’s recommendation tries to build a process which uninfluenced by the director, some commentators argue that director will still have influence over the committee and procedures to determine the pay which resulting in biased decision on higher executive pay. Moreover, most of the non-executive directors of