The remuneration committee sets pay policy and executive directors' pay. In the UK it has at least three independent non-executive directors, and no director decides their own pay. A director's package has four parts: basic salary, performance-related pay, pension and benefits in kind. Shareholders vote on pay policy at least every three years.
The board committees
| Committee | Main job | Members (UK Code 2024) |
|---|---|---|
| Nominations | Board appointments, succession, size, balance and diversity | Majority independent NEDs |
| Remuneration | Pay policy and executive pay | At least 3 independent NEDs (2 in smaller companies) |
| Audit | Financial reporting, internal control, internal and external audit | At least 3 independent NEDs (2 in smaller companies), one with recent and relevant financial experience |
| Risk (often) | Risk appetite and risk management | Often NEDs; common in banks |
Committees reduce the board's workload, bring focus and independence to sensitive decisions, and reassure shareholders.
A director's pay package
| Element | What it is | Good practice |
|---|---|---|
| Basic salary | Fixed pay for the role | Set by skills and market rates, using benchmarking |
| Performance-related pay | Annual bonus; long-term share awards | Linked to long-term strategy; shares held at least 5 years in total |
| Pension | Retirement contributions | Based on salary only; rate in line with the workforce |
| Benefits in kind | Car, health cover and similar | Modest and disclosed |
Key UK Code 2024 provisions on pay
- No director should be involved in deciding their own pay.
- The remuneration committee chair should have served at least 12 months on a remuneration committee.
- Share awards should be released over a total vesting and holding period of at least five years.
- Pay schemes should include malus and clawback, explained in the annual report.
- Executive pension contributions should be in line with those of the wider workforce.
- NED pay should not include share options or performance-related elements.
- The committee should be able to use discretion to override formula-driven outcomes.
Source: FRC, UK Corporate Governance Code.
Director pay in ACCA SBL
This sits in governance (syllabus area B). Typical tasks: a CEO bonus based only on one year's profit, or an executive on the committee setting their own pay. Point out how the scheme encourages short-termism or risk-taking, link to agency theory, and recommend a balanced package with long-term measures. A charity such as Historic Places (March 2025 pre-seen) has trustees rather than a listed board, but the same principles of fairness and transparency apply.
FAQs
What does a remuneration committee do?
It sets the remuneration policy for executive directors and decides the pay of executives and the chair. It aims to attract, keep and motivate directors to deliver long-term success, and reports on pay in the annual report.
Who sits on the remuneration committee?
Under the UK Corporate Governance Code 2024, at least three independent non-executive directors (two in smaller companies). The board chair may be a member if independent on appointment but cannot chair it.
What are the components of a director's pay package?
Basic salary, performance-related pay (annual bonus and long-term share awards), pension and benefits in kind such as a company car.
Do shareholders vote on director pay?
Yes. In UK quoted companies, shareholders have a binding vote on the remuneration policy at least every three years and an advisory vote on the annual remuneration report.
What are malus and clawback?
Malus lets the company reduce or cancel awards not yet paid. Clawback lets it recover pay already paid, for example after misconduct or a misstatement of results. The UK Code expects both.
Should non-executive directors get bonuses?
No. The UK Code says NED pay should not include share options or other performance-related elements, to protect their independence.