The Regulation of Executive Compensation
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The Regulation of Executive Compensation

Greed, Accountability and Say on Pay

Kym Maree Sheehan

Using the model of the regulated remuneration cycle, and drawing upon evidence of its operation from interviews, voting data and remuneration reports from UK and Australian companies, the book demonstrates whether say on pay can operate successfully to both constrain executive greed and ensure accountability exists for company performance and decision-making.
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Chapter 4: Remuneration committees

Kym Maree Sheehan


One important device that regulates the directors’ remuneration decisionmakingpowers is the company’s constitution or articles of association. In the UK, the constitution operates as a contract binding the company and its members. Under Australian law, the constitution operates as a contract between the company and each director and company secretary, the company and each member, and a member and each other member. In this way, the constitution presents a form of private ordering. This may be supplemented by ‘policy’ documents such as a Remuneration Committee Charter or terms of reference. The classification as policy documents is to distinguish these ‘leadership tools’ from constitutional documents that may only be amended by shareholders passing a special resolution. The company’s constitutional documents may not necessarily identify the remuneration committee by name, instead containing a provision allowing the directors to delegate any of their powers to a committee of directors (with some procedural rules supplementing this decision making). The constitution may also specifi cally allocate decisions on remuneration to ‘the board’ or to ‘the directors’. As the case of Guinness plc v Saunders illustrates, a failure to follow these requirements can mean that the committee’s decision to pay the remuneration decided upon is not a valid decision of the company.

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