Board Priorities 2024: Executive Remuneration
11 January 2024
Remuneration will continue to be a contentious issue in 2024 and, as ever, all entities should approach significant pay and bonus increases and new incentive arrangements with caution. 2023 saw widespread shareholder revolt globally against what was perceived to be unfair remuneration to directors and senior management, particularly at a time when the costs of living are substantially increasing.
Determining the right compensation packages will remain critical and remuneration committees should continue to determine the appropriate level of executive compensation and incentive structures with the objective of recruiting and retaining the best management available. Boards must continue focussing on demonstrating an awareness of the potential impact of compensation structures on business priorities and risk-taking, taking into account specific goals like climate sustainability and public and political views on compensation.
Globally, investors and other key stakeholders of listed companies and larger private companies expect (and in some cases regulators have already mandated):
- Risk alignment: pay structures to deter excessive risk taking such as deferral of vesting, implementing stretch performance targets and clawback mechanisms; and
- Increased transparency: increased disclosure on executive pay, particularly in annual reports and appropriate consultation with stakeholders on matters such as significant pay increases.
Mounting economic headwinds present an important opportunity for boards to ensure the remuneration being proposed for executives is both market competitive and aligned with changing organizational strategies. A thorough review of remuneration, including an external market analysis and benchmarking, should assist in providing comfort to shareholders that the entity's compensation strategy is well-calibrated.