A significant and appropriate proportion of executive directors’ and key management personnel's remuneration should be structured so as to link rewards to corporate and individual performance. Performance-related remuneration is aligned with the interests of shareholders and other stakeholders and promotes the long-term success of the company.
A. Explanation

This Provision describes the remuneration of EDs and KMP, and the linkage to performance.

The essence of this Provision is that executive pay should be largely tied to performance – both corporate and individual.

Practice Guidance 7 suggests that the company’s remuneration framework should be tailored to the specific role and circumstances of each KMP. The remuneration level and mix should recognise the responsibilities, performance and potential of these individuals.

In particular, performance-related remuneration should have the following features:

  • It should account for the risk policies of the company, be symmetric with risk outcomes, and be sensitive to the time horizon of risks.
  • There should be appropriate, quantifiable and meaningful measures that incentivise the right behaviour and values that the company supports.
  • For individuals in control functions (e.g. Chief Financial Officer, Chief Risk Officer, head of the internal audit function), the performance measures should principally be based on achieving the objectives of their functions.
  • Long-term incentive schemes are encouraged for EDs and KMP, but their costs and benefits should be carefully evaluated.
  • In general, shares, grants of options or other forms of deferred remuneration should vest over a period of time. EDs and KMP should be encouraged to hold their shares beyond the vesting period, subject to the need to finance any cost of acquiring the shares and associated tax liability.
  • Companies should consider using contractual provisions that allow them to reclaim incentive components of remuneration in exceptional circumstances, including, for example, misstatement of financial results, misconduct resulting in financial loss to the company, or conviction for related criminal offences.


B. Practice Guidance


C. Related Rules and Regulations
  • Nil.


D. CG Guides
  • RC Guide 3.5: Determining Non-Executive Director Fees [Non-Executive Fees].
  • RC Guide 4.2: Executive Remuneration Philosophy [Executive Remuneration].
  • RC Guide 4.3: Executive Remuneration Components [Executive Remuneration].
  • RC Guide 4.3: Executive Remuneration Levels [Executive Remuneration].
  • RC Guide 4.5: Performance Measures [Executive Remuneration].
  • RC Guide 4.6: Performance Targets [Executive Remuneration].
  • RC Guide 4.7: Remuneration and Risk Alignment [Executive Remuneration].
  • RC Guide Appendix 4C: Sample Remuneration Framework [Executive Remuneration].
  • RC Guide Appendix 4G: Common Financial Performance Measures [Executive Remuneration].
  • RC Guide Appendix 4H: Considerations in Adopting Profit Measures as Performance Measures [Executive Remuneration].
  • RC Guide Appendix 4I: Framework for Setting Performance Goals [Executive Remuneration].
  • RC Guide Appendix 4J: Mapping Remuneration and Risks [Executive Remuneration].
  • RC Guide 5.4: Plan Design [Equity-Based Remuneration].
  • Board Guide Appendix 5C: Duty to Act in Company’s Best Interests [Director Duties].


E. Related Articles



eGuide to CG Code
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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