Governing Body and Executive Remuneration: Is there Sustainability in this Important Factor in Business? Part 10
In our last article, we continued the discussions on directorship development including the assessments of first- time appointed directors and filling gaps on training resulting from the assessments.
The article also mentioned the importance of directors’ induction mixing both firsttime appointees and the other experienced directors including additional training on both co- service and soft skills.
It also covered the concept of board evaluations and the related suitable time for evaluations. It covered some important aspects of remuneration policy which are used for determining the responsible and fair remuneration.
In this article, we will continue with the issues relating to the executive management remunerations and their policies. Institute of Directors in South Africa ( IoDSA): Guidance for Remuneration Committees- The Remuneration Policy ( 2020) states that “The remuneration strategy and policy are informed by the business strategy.”
Each organisation’s remuneration policy is driven by its peculiarities and the vagaries of the environmental, social, and economic factors and its industrial uniqueness which is, usually, supported by commercial rationale and the longterm interests of stakeholders.
Based on these situations, the remunerations policy may be accentuated by the following factors: remuneration practices may be inappropriate to some commercial companies while they are legitimate to others. ( IoDSA: Guidance for Remuneration Committees- The Remuneration Policy, 2020).
Therefore, discretionary deviations may be possible and encouraged for the purposes of suitability to that situation. Consequently, the remuneration committee is expected to invest a lot of resources to establish remuneration approach tailored to its industry strategic goals.
This determination of remuneration should be based on the corporate objectives, measures, targets, and metrics. The committee may even be imperatively more agile to move specialised remuneration approach to support performance and the long- term success of the organisation.
The remuneration policy requires to be reviewed on a regular basis with a view to being amended to pace up with the change of business strategy to meet the situational imperatives requiring strategic agile responses ( IoDSA: Guidance for Remuneration Committees- The Remuneration Policy, 2020).
Due to the dynamic nature of both internal and external environments, the remuneration policy is expected to be reviewed on an annual basis. The review serves to audit the remuneration practices over the year to enhance the committee oversight of how the policy has been implemented.
Effective remuneration policies facilitate the attraction and retention of staff with packages designed to be in line with the scope and principles of the policy. Items of review may include intermittent discretionary reviews of the policy during the year to attract or retain some executives. ( IoDSA: Guidance for Remuneration Committees- The Remuneration Policy, 2020).
Based on that, reward management evolves and consequently changes with organisational structure, attraction and retention of talent, strategic priorities, legislation, regulation, and governance requirements.
The assurance of the robustness of the remuneration policy is enhanced by the following factors: There is the composition of the policy which addresses the main issues in the policy, such as: remuneration philosophy, remuneration strategy and objectives, remuneration principles underpinning the policy, award criteria, eligibility levels, targets, performance conditions, vesting periods, etc.
The composition of the policy also covers how it will be disclosed in the Annual Report such as: the policy availability on the website for the purposes of the shareholders’ inspection. It also contains a condensed version accompanying the notice of the meeting.
This should be focused on the appropriate areas of the remuneration report. It also contains the Integrated Report. The composition of the policy also covers the guidelines for the evaluation of a remuneration policy ( IoDSA: Guidance for Remuneration Committees- The Remuneration Policy, 2020).
It should be noted that the remuneration policy is progressively pushing for change to the topical issues in corporate governance including integrated thinking and reporting.
Therefore, it is cognisant of the fact that before these corporate governance and financial reporting reforms, the financial statements could only report on 30percent of corporate information. Consequently, the expenses on the King IV six capitals, environmental, social and governance ( ESG) factors and other sustainability and climate change were not added in the computation of corporate retained incomes ( Profits). Based on that, retained incomes were overstated because of not adding these sustainable development factors.
Based on this information, it is of great importance to consider these sustainable development factors in their entirety because lagging behind as a country may mean losing foreign direct investment ( FDIs).
Some organisations are mocking these reforms by engaging audit firms to prepare their financial statements in an integrated reporting format without having adopted and adapted to the integrated thinking and reporting.
Then what is a suitable approach to live integrated reporting? There must be a fully blown transformation to integrated report which means reporting primary data through the channels of integrated reporting.
In the next article, we will continue with some salient pointers of the policy. We extend our warm gratitude to our readers for the feedback.