For both for-profit and not-for-profit organizations, governance of executive compensation and directors’ salaries can present major challenges. Disclosure practices may be scrutinized or subjected to ever-increasing requirements. Across the board, organizations need a clearly defined mission and vision that translates into concrete goals for measuring executive compensation and board of directors’ pay.
Effective governance is clearly the answer to resolving the pay-for-performance challenge. Each member of a board of directors owes a fiduciary duty to establish a compensation strategy that does not include excessive board compensation. The test of viability is the board’s ability to translate that strategy into performance metrics for executive and director compensation.
Executive compensation governance:
Director compensation governance:
For any public organization, transparent disclosure of executive and director compensation is an essential component of good governance. In order to demonstrate accountability to stakeholders, organizations must employ disclosure practices that clarify and publically make known the roles and responsibilities of board and management with regard to director’s salaries.
They must also implement procedures to independently verify and safeguard the integrity of the company's financial reporting - including board compensation reports. Disclosure of material matters concerning the organization should be timely and balanced to ensure that all investors have access to clear, factual information.
Further reading - the Canadian Coalition for Good Governance (www.ccgg.ca)
In 2011 the Canadian Coalition for Good Governance released a set of principles for director compensation.
According to the principles:
Executive Compensation, what must companies disclose?
Vision Mission & Values
About Corporate Governance
Board Committees and Board Evaluations
Glossary of Terms
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