Role of the nomination committee and remuneration committee in corporate governance

The nomination committee and the remuneration committee, both of these committees have a vital role in corporate governance because they decide who will operate the company and how much they will be paid.
The objective is to introduce a measure of independence into the whole process. There is an argument; however, that as the community of non-executive directors, even on a global basis, is a comparatively small one, it may happen that a non executive director of company A may be the CEO of company B, whose non-executive directors may include the CEO of company A.

The function of the nomination committee is to recommend suitable candidates for appointment to the board and other senior posts. The nomination committee should make sure that the best person is selected for the job. If there was not such a committee in action and the decision was down to one person, an inappropriate appointment could be made. It could be just that the person is not the most suitable. However, it could be that appointment is made of someone who will back up the person making the appointment in board decisions and it could be a way of fixing board votes.

The function of the remuneration committee is to settle on fair rates of pay and other compensation – pension rights, share options etc – for management and other senior employees. Again, it is useful to use a committee to set salaries so that the decision does not rest with one person. That person could take bribes from other directors for giving undeserved pay rises.

• The remuneration committee should make sure that directors are not paid excessive amounts.
• They should be paid enough to catch the attention of good people to the role but not too much.
• However, it is now deemed beneficial to pay people for good performance.