What Is a Remuneration Committee?

K.C. Bruning

A remuneration committee is a group that determines executive compensation. It removes top level employees from the process in order to ensure that decisions about compensation are made objectively and with the benefit of the company in mind. This is particularly important with publicly traded businesses. A remuneration committee is also tasked with ensuring that the results of their deliberation are satisfactory to its recipients so that the company can retain its top level employees.

A remuneration committee is a group that determines executive compensation.
A remuneration committee is a group that determines executive compensation.

The size of a remuneration committee depends upon the needs of the company, but usually consists of at least three members. Committee members typically serve for a term of a couple of years, which can often be extended. The group is often lead by a committee chairperson. A remuneration committee will usually have a few scheduled meetings a year, with the possibility of more for special circumstances. These meetings are highly confidential and tend to be closed to all but the committee members.

When deciding on individual remuneration, after discussing the employee in question, the committee will determine an appropriate compensation package. This is then voted on by the group. Even results are typically resolved with a either a casting or second vote.

In addition to determining executive salary and benefits, the committee will also typically manage other areas related to compensation. This includes the development of incentives, terms of executive employment, and guidelines for performance reviews. It is also common for the group to determine an annual goal target for the executive team. The committee’s duties may also include determining off-boarding procedures such as administration of pensions and terminating employees.

Members of a remuneration committee must be knowledgeable of all key aspects of the business, in addition to the performance of the executives to be compensated, while staying somewhat objective. Often the remuneration committee will be comprised of members from the board of directors. In many cases a nomination committee will find candidates, who are then elected by the board. Candidates are typically selected based on their knowledge of the organization as it relates to compensation. Often at least one member will have served a previous term.

One of the most important tasks of the remuneration committee is to ensure that executive compensation complies with all applicable regulations and guidelines. This includes legal and organizational requirements. If the company is publicly traded, then the committee must also stay accountable to the stockholders, in addition to complying with the regulations for an organization of this nature.

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