Components of a Directors Remuneration Package

Basic salary
-in accordance with the
contract (depends on
salary, benchmarking
peers etc)
-not performance
related

As with most jobs all directors are promised a specific annual salary.

Performance-related
elements

Directors bonus schemes can be useful as a motivating tool. They are

a means of ensuring that directors are working towards the
companys objectives. For example, if the company is trying to grow,
then a bonus scheme should be set up to reward directors for
company growth.

This is usually determined through benchmarking peer group

salaries.
Peer groups should be industry specific and should reference
equivalent sized ventures.

Bonuses are often given for increased profits, increased market

share, increased sales, reduced costs, increased margins and so on.
However, bonuses could also be given for non-financial measures, for
example, reducing employee turnover or better customer service or
environmental targets such as reducing pollution. This may avoid the
focus on inflating short-term profits.

Share options

;Bonus schemes tend to be short term in nature and focus on one

financial year. This may not be sufficient time frame for the directors
to achieve what shareholders want them to.
-

Benefits in kind/perks
(transport, health
provisions, holidays,
loans)
Pension contributions

Share options are contracts that allow the executive to buy

shares at a fixed price or exercise price.
If the stock rises above this price the executive can sell the
shares at a profit.
Share options give the executive the incentive to manage the firm
in such a way that share prices increase, therefore share options
are believed to align the managers' goals with those of the
shareholders.

The remuneration committee should consider the benefit to the

directors and the cost to the company of the complete package. These
will serve to attract directors into a role, and maybe retain them in it,
but rarely have a motivational impact. As long as they are not viewed
to be excessive for the position they are widely accepted.
These are a common part of any remuneration package. Their level is
usually set in relation to the market conditions (i.e. amounts paid to
peer groups) and taking into account the age of the director in
question.
It is possible that a proportion of these pensions contributions could
be performance related, providing a further incentive element to the
overall package.
The Combined Code suggests that only a directors basic salary is
pensionable.

Loans

Since corporate governance is a global issue there are many

countries where loans to directors have not been outlawed as they
have in the US under SOX.
There is little justification in making loans to people who can get
loans from any other commercial lending source, especially when
these loans are often non-interest bearing and possibly even nonrepayable.