Corporate Governance Center

Transcription

1 Remuneration Committee Guidelines April 2008

2 Principle and Rationale (SET) s Principles of Good Corporate Governance for Listed Companies 2006 recommend that a listed company s board of directors ( the board ) should set up committees to study and screen special tasks on behalf of the board. One of those groups is the Remuneration Committee. The remuneration committee s duties are to consider and recommend to the board the criteria for and form of directors and top executives remuneration. The board then approves or amends executives remuneration and proposes directors remuneration to shareholders for approval. To ensure the independence of the remuneration committee, the majority of its members should be independent directors. Moreover, its chairman should also be an independent director and the chairman of the board should not be either the committee chairman or a member. To support the recommended best practice, SET has prepared the following remuneration committee guidelines. A board may adjust these guidelines to suit the company s specific environment. What needs to be considered by the board in establishing a remuneration committee 1. The remuneration committee s charter The board should consider and approve a written charter, clearly specifying the duties and responsibilities mandated to the remuneration committee. The duties and responsibilities include the following: 1.1 To consider forms and criteria for remuneration The remuneration committee should consider and propose to the board the criteria for and the form of remuneration of directors and the managing director. To construct an appropriate remuneration package, the committee should go through the following steps: (1) Review current criteria (if any). (2) Consider remuneration packages of other companies in the same industry. 2

3 3 (3) Establish, in a fair manner, criteria which will create the expected results and reward those who contribute to the firm s success. (4) Review all forms of remuneration, including the amount and proportion of each form. The principles guiding this review are as follows 1 : Retainer fee: can be in the form of a monthly or annual payment. When reviewing this fee, the committee should take into account three factors: (1) current practices across the same industry, (2) performance and size of the company and (3) responsibilities, knowledge, capabilities and experience required from directors and the managing director. Incentive payment: should be tied to the value the company has created for shareholders, such as the firm s net profit and/or dividends paid. Importantly, directors and the managing director s incentives should not be excessive. Attendance fee: may be paid to a director in addition to the retainer fee and incentive. The committee should determine an attendance fee at a level that encourages directors to regularly attend board meetings. When considering the criteria for and the form of director s remuneration, the remuneration committee should set an amount that will encourage directors to limit the number of directorship in other companies, so that directors will have sufficient time to attend board meetings and perform their duties effectively. (5) Determine whether the criteria for and the form of remuneration is in accordance with relevant regulations and related recommendations. 1.2 To consider criteria for evaluating the managing director s performance The committee should establish criteria for evaluating the managing director s performance and propose the criteria to the board for approval. The board may either evaluate the managing director s performance itself or assign this duty to the committee. 1 Summary from Director Compensation Best Practices, Thai Institute of Directors

4 4 1.3 To determine the annual remuneration packages for directors and the managing director The committee should determine the amount paid annually to directors and the managing director. The recommended procedure is as follows: (1) Determine the annual remuneration packages for directors and the managing director in accordance with the established criteria. (2) Take into account the evaluation of the managing director s performance when determining his/her remuneration (regardless of who evaluates him/her) (3) Take into account the remuneration packages of other companies in the same industry. (4) Propose to the board the remuneration packages that the committee deems appropriate. The board then approves or amends the managing director s remuneration package. In the case of the directors remuneration packages, the board needs to consider and propose them to the shareholders meeting for approval 1.4 To consider Employee Stock Option Program (ESOP) If the firm wishes to reward its directors and employees with ESOP, the committee should consider and determine how the terms and conditions of the program will encourage directors and employees to devote themselves to create long-term value for shareholders and retain high quality personnel. However, the committee should ensure that directors and employees are not overpaid and the scheme is fair to shareholders. Moreover, according to SEC regulations, should any director or employee be entitled to more than 5% of the total securities being distributed, the committee has to consider the suitability of the program in this case and give approval. Furthermore, any member of the committee who is entitled to more than 5% of the total securities being issued must not be involved in decision-making on this matter. 2. Membership of the committee The board shall appoint directors whom it deems appropriate as members of the committee.

5 5 3. Composition of the committee 3.1 The majority of committee members should be independent directors. At the same time, the chairman of the committee should also be an independent director. The purpose of this recommendation is to ensure that the committee will be able to perform its duties transparently and independently. 3.2 Committee members who are not independent directors, as mentioned in item 3.1, should be non-executive directors to ensure that they have sufficient time to perform their duties effectively. Should there be any executive directors serving on the committee, they should be in the minority and should not participate in decision-making concerning the managing director s remuneration. 3.3 The chairman of the board should not be either the committee chairman or a member to ensure that the committee will be able to perform its duties independently. 4. Number of committee members There should be at least three members. 5. Tenure of committee members Appointment to the committee should be for three years and should coincide with the member s tenure as a director. 6. Reporting responsibilities 6.1 To report to the Board of Directors Since the committee is appointed by the board to perform particular tasks, it is obliged to report regularly to the board its recommendations on the criteria for, and the amount of, remuneration. The board should determine the frequency of reporting. 6.2 To report to shareholders The committee should report to shareholders through the firm s annual report and the shareholders meeting.

6 6 7. Disclosure of remuneration committee 7.1 The remuneration committee should ensure that the following data is included in the annual report: (1) Names of committee members (2) Number of committee meetings (3) Attendance at committee meetings by each committee member (4) Summary of the committee s charter and remuneration criteria 7.2 The committee s charter and remuneration criteria should be disclosed in full on the company s website. 8. Other matters 8.1 The committee should have a budget sufficient to commission consultancies, as it deems necessary, so it may effectively fulfill its obligations as prescribed in the charter. 8.2 The committee should consult the board about who will be responsible for reviewing the overall criteria for, and structure of, employees remuneration. The board may mandate the committee or management to do this task. 8.3 The committee should regularly conduct a self-assessment to review its performance and seek solutions to any problems identified