The RC considers all aspects of remuneration including termination terms to ensure they are fair.
 
A. Explanation

This Provision states that the RC is to consider all aspects of remuneration, including fairness.

Practice Guidance 6 sets out the various aspects of remuneration that should be considered:

  • Payments: director's fees, salaries, allowances, bonuses, options, share-based incentives and awards.
  • Benefits in kind.
  • Key Management Personnel (KMP) termination clauses and payments which should be fair and reasonable, and not overly generous.
  • Fair approach that seeks to reward good and not poor performance.

The Provision highlights terms of termination because the termination of personnel can be difficult, particularly when they do not wish to leave the company. The point of termination is not usually a good time to negotiate termination payments. For that reason, as far as possible, clear and comprehensive termination provisions should be established in the contracts of service, so that both parties (employer and employee) are clear at the outset about the consequences of the employee’s exit.

At the same time, at the point of recruitment, highly-in-demand employees may demand golden parachutes prior to joining. The Board needs to ensure that exit payments are not overly generous.

 

B. Practice Guidance

 

C. Related Rules and Regulations
  • Section 152(7) of the Companies Act: Removal of Directors.
  • Section 168 of the Companies Act: Payments to Director for Loss of Office, etc.

 

D. CG Guides
  • RC Guide 4.3: Executive Remuneration Components [Executive Remuneration].

 

E. Related Articles

 

 

 

eGuide to CG Code
Overview
Preamble
Definition of Corporate Governance
History and Structure of the Code
Role of the Board
Role of the Chair
Focus on Long Term and Sustainability
Revised Code Structure and Approach
Mandatory Principles
Provisions and Variations
Thoughtful and Meaningful Application
Board Matters
Principle 1
Provision 1.1
Provision 1.2
Provision 1.3
Provision 1.4
Provision 1.5
Provision 1.6
Provision 1.7
Principle 2
Provision 2.1
Provision 2.2
Provision 2.3
Provision 2.4
Provision 2.5
Principle 3
Provision 3.1
Provision 3.2
Provision 3.3
Principle 4
Provision 4.1
Provision 4.2
Provision 4.3
Provision 4.4
Provision 4.5
Principle 5
Provision 5.1
Provision 5.2
Provision 5.3
Remuneration Matters
Principle 6
Provision 6.1
Provision 6.2
Provision 6.3
Provision 6.4
Principle 7
Provision 7.1
Provision 7.2
Provision 7.3
Principle 8
Provision 8.1
Provision 8.2
Provision 8.3
Accountability and Audit
Principle 9
Provision 9.1
Provision 9.2
Principle 10
Provision 10.1
Provision 10.2
Provision 10.3
Provision 10.4
Provision 10.5
Shareholder Rights and Responsibilities
Principle 11
Provision 11.1
Provision 11.2
Provision 11.3
Provision 11.4
Provision 11.5
Provision 11.6
Principle 12
Provision 12.1
Provision 12.2
Provision 12.3
Managing Stakeholder Relationships
Principle 13
Provision 13.1
Provision 13.2
Provision 13.3
Practice Guidance
Board Roles and Director Duties
Board Composition and Guidance
Chairman and CEO
Board Membership
Board Performance
Procedures for Developing Remuneration Policies
Level and Mix of Remuneration
Disclosure on Remuneration
Risk Management and Internal Controls
Audit Committee
Shareholder Rights and Engagement
Engagement with Shareholders
Managing Stakeholder Relationships
eGuide Glossary

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