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Chapter 9

Directors’ remuneration

6.1 Behavioural impact

 Remuneration packages should be sufficient to attract, retain and motivate
directors of appropriate quality.

 However, they should also be designed to align the interests of directors with
those of the shareholders and to promote the long-term success of the
company – e.g. UK Code advises that share options should not granted with
exercise dates < 3 years.

6.2 Components of remuneration package

 Basic salary Determined by the experience of the director and the
market rate.

 Performance related Should be linked to measurable long-term performance
bonuses or enhanced shareholder value. Criteria should be risk
adjusted to prevent excessive risk taking.

 Benefits in kind Could include company cars, life assurance,
healthcare etc. Package offered to directors should not
be excessive compared to other employees

 Pensions The UK Corporate Governance Code states that, as a
general rule, only basic salary should be pensionable

 Share options Should align management and shareholder interests.
However, given there is no downside risk, directors
may proceed with high risk projects. Also risk that
directors may try to boost short term share price
leading up to the exercise date.

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