There is a strong international trend to require disclosure regarding the remuneration of directors and executives of both publicly traded and other entities. For instance, the OECD Guidelines on Corporate Governance call for the disclosure of compensation to individual board members and key executives.
The United Kingdom has the most extensive set of disclosure requirements with respect to management compensation in Europe. Under the Companies Act 2006 and the UK Listing Rules, the UK requires publicly traded companies listed on a national stock exchange to disclose executive compensation in their annual reports. The disclosure regime requires the disclosure of salary, fees, bonus benefits, pension and long term incentives in a tabular format. In addition, companies are required to provide a detailed description of several compensation elements including: executive compensation philosophy, overview of bonuses, overview of long term incentive plans, description of pensions, payouts to departing executives, and the peer groups used to help determine remuneration. Most notably, the United Kingdom requires a vote of the shareholders to approve the remuneration report. This is a level of disclosure that is not prevalent in the rest of the world but has been cited as “best practices” for listed companies in Europe.
If this is the route countries would like to take, companies should be encouraged to implement a remuneration policy to improve compliance. However, I think a vote of the share holders in Sri Lanka may not be beneficial to the listed entity considering the level of maturity of the market and investors. However, a policy could be as follows;
In the light of the skill required for a person to become a director, the Code of Corporate Practices and Conduct provides that directors’ remuneration should be sufficient to attract, retain and motivate executives of the quality required by the board. A company should appoint a remuneration committee or another appropriate board committee to determine the remuneration packages of the directors.
As part of disclosure, listed companies should disclose emoluments paid to directors during the last financial period in their annual financial statements. These emoluments include fees paid for services rendered as directors, directors’ basic salaries, bonuses and performance-related payments. It should also include other benefits provided to directors and reimbursements for facilities provided to the director.