Board committees -Roles and responsibilities

For this round,i will touch on board committees.As far as I concern, this topics what the examiner are focusing on. Hence, it will be excellent if you able to understand and apply those understanding in the exam. First, There is Remuneration committee, followed by Nomination committee, and finally Risk committee.
Lets start on:
Remuneration Committee
The role of remuneration committee is to have an appropriate reward policy that attracts and motivates directors to achieve the long-term interests of shareholders.In order to be effective, the committee needs both to determine the organisation general policy on the remuneration of executive directors and specific remuneration packages for each directors.
The UK Combined Code requires the committee to be staffed by independent non-executive directors (NED, to ensure directors dont set their own remuneration levels.
Some of the responsibilities of the remuneration committee are:

• Review the framework for the remuneration and terms and conditions of employement of the chairman of the board and of executives directors.
• Monitor the level and structure of the remuneration of senior managers.
• Set detailed remuneration of the executive directors and chairman including compensation payment.
• To ensure that executive directors are fairly rewarded for their contribution on the performance of the company.
  
• Transparency to shareholders that remuneration of the executive directors is set by individuals with no personal interest in the outcome of the committee decisions.

Then,we have the Remuneration packages. Packages will need to attract, retain and motivate directors of sufficient quality and at the same time taking into account shareholders interests.
Typical component in a remuneration packages might be..

• Basic salary - in accordance with the terms of the directors contract of employment, and not related to the performance of the company, but determined by experience of the director.
• Bonus - Directors may be paid by cash bonus for excellent performance.
• Share options - Right to purchase shares at specified exercise price in a specific period time in the future. Share options give directors the incentive to manage the company that share price increase, the share options are believed to allign the manager or directors goals with shareholder, thus at the same time overcomes the agency problems since the directors becomes the owner.However, such share must be approved by shareholders and it should be rewarding but not excessive. In addition, the company should ensure that the shares are not offered at a discount and options should not be excersiable,under three years.
• Pensions - The UK Combined Code states only basic salary should be pensionable. The Code emphasises that the committee consider the pension consequences and associated costs to the company of basic salary increases.
• Other benefit i.e, Benefit in kind - The committee consider the benefit and the cost the company of the complete package. Ideally, the package offered to directors should be an extension applied to employees. The committee should provide benefits that expection with the position of executive directors or would increase their royalty i.e company car, health insurance.

Remuneration Disclosures.
The UK Directors Remuneration Report Regulations 2002 requires:

• Director submit a remuneration report to members at AGM each year,
• Report provide full details of directors remuneration,
• Duration of contrats with directors,
• the report is clear, transparent, and understandable to shareholders

Other disclosures that might be a good practice is notice periods and termination payments of the directors contract and external remuneration consultants employed by the remuneration committee on advicing remuneration should be provided.

Nomination Committee
The main task of the Nomination Committee is to propose candidates for election to the Board of Directors, including the chairman. The Nomination Committee must take into consideration the various rules on independence of the Board in relation to the Company, its senior management and major shareholders, in accordance with the requirements of the Corporate governance codes.
Meetings and Reports:
The Committee will hold regular meetings at least two times each year generally in conjunction with regularly scheduled meetings of the Board of Directors, and such special meetings as the Chair of the Committee or the Chairman of the Board may direct. The Committee will maintain written minutes of its meetings, which minutes will be filed with the minutes of the meetings of the Board of Directors. At each regularly scheduled meeting of the Board of Directors, the Chair of the Committee shall provide the Board of Directors with a report of the Committee’s activities and proceedings.
The main responsibilites and duties of the nomination committee are :

• Formulating, recommending to the Board and overseeing the implementation and administration of the Company's corporate governance structure and framework.
• Review regularly the structure, size of the board and make recommendation to the board.
• Give full consideration to succession planning for directors.
• Reviewing the Company’s Corporate Governance Principles at least annually and recommending changes, as necessary, to the Board.
• Periodically administering and reviewing with the Board an evaluation of the processes and performance of the Board in order to identify areas of concern or potential issues relating to Board and performance effectiveness also to assess and evaluate the overall effectiveness of individual directors.
• Make recommendations to the board concerning the standing for re-appointment of directors.
• To reduce domination in executive selection by the CEO/Chairman.

In carrying out such responsibilities, the Committee shall have the power and authority to retain such consultants, outside counsel and other advisors as the Committee may deem appropriate and shall have the sole authority to approve the fees and other terms of engagement.

Risk Committee
Sadgrove suggests the following functions for the risk committee:

• Develop risk awareness among staff
• Ensure compliance with risk policies
• Control risk in their own department
• Review audit findings and implement controls
• Make risk related recommendation to the board.

The main responsibilities and duties of the risk committees are:

• Advice the full board on risk management
• Emphasise and demostrates benefit of a risk-based approach to internal control
• The Committee will review the work performed by the internal auditors and provide comments on that work to the Audit Committee, as appropriate
• The Committee will review the risk management procedures of the Group and report to the Audit Committee of the Board on the results of their review
• Review the system of internal control under the 5 headings :- - Control environment, Risk assessment, infromation system, Control procedure, Monitoring.
• Providing disclosure on the internal controls in the annual reports and accounts
• The Committee shall recommend to the Audit Committee of the Board the overall risk management strategy of the Group (including the criteria to assess risk) and oversee the implementation and effective operation of that strategy, its policies and procedures.
• If appropriate, review credit risk, liquidity risk and operational risk exposures with regard to full board risk appetite.