Complete the fill-in-the-blank questions below to test your knowledge of the material in chapter 9 of the textbook.
1
The committee which helps provide a formal and transparent procedure for the setting of executive directors' remuneration is the committee.
The committee should be comprised of a majority, or preferably wholly, independent non-executive (outside) directors. The remuneration committee may take external advice, for example from remuneration consultants, in order to help it in setting the remuneration levels.
Page reference: 137/138
2
Various performance measures may be used to help ensure that directors' remuneration is perceived as fair and appropriate and in keeping with the directors' and company's performance. There are three broadly conceived types of measures: accounts-based measures, individual based measures, and measures.
Page reference: 138/139
3
When directors leave a company after failing to meet their targets, they may receive large pay-offs which are termed goodbyes.
These are also sometimes called 'rewards for failure' and they are seen as inappropriate given that the failings of these directors may reduce the value of the business and/or threaten the jobs of employees.
Page reference: 139
4
In general it is not considered a good idea to remunerate non-executive directors with share .
Share options could give the non-executive directors an unhealthy focus on the short-term share price of the company so non-executive directors are usually paid in cash although some advocate remunerating non-executive directors with the company's shares (as opposed to share options) to align their interests with those of the shareholders.
Page reference: 140
5
In the UK, companies must hold a shareholder on the directors' remuneration report at the company's annual general meeting.
The vote is an advisory vote but if shareholders vote against the directors' remuneration report it is indicative of the strength of their feelings and so the board of directors would often reconsider the proposed remuneration.
Page reference: 141
