What is the Compensation Committee?

The compensation committee is a board committee that oversees executive pay policy, the design on their incentives and related disclosures. Its role is to ensure remuneration aligns with strategy, performance, risk, and stakeholder expectations.

Why it matters

Getting pay right supports the director’s role in creating long term value for the business. It reinforces the culture and discourages excessive risk taking. Clear, fair and well explained decisions also build trust with shareholders, employees and the public.

Core responsibilities

• Set and periodically review the executive remuneration policy and framework.
• Approve individual packages for the CEO and other executive directors.
• Design short term and long term incentives
• Calibrate targets and assess outcomes fairly and consistently, applying discretion where justified and explaining it clearly.
• Consider wider workforce pay and conditions, including pay ratios and indicators of fairness.
• Oversee remuneration disclosures and engagement with shareholders, including say on pay votes.

Composition and independence

Most or all members should be independent non-executive directors. The chair should be independent. The chief executive, the chief people officer and external advisers may attend by invitation to provide input, but they do not take decisions.

Where advisers are used, the committee manages potential conflicts and documents how advice was obtained and evaluated.

Processes and authority

The committee operates under a written charter that sets its remit, meeting schedule, annual work plan and decision rights. It manages conflicts of interest, keeps accurate minutes, tracks actions and reports to the board after each meeting.

Best practice principles

• Alignment with performance and risk: Reward outcomes should reflect performance delivered, be risk adjusted where needed and avoid rewards for failure.
• Simplicity and clarity: Plan designs and performance measures should be easy to understand, with predictable links between results and outcomes.
• Market context: Use benchmarking as a reference, not a target, and avoid automatic upward drift.
• Transparency and engagement: Provide clear disclosures and consult early and meaningfully with shareholders on material changes.

Key deliverables

• A remuneration policy that explains structure, rationale and how it supports strategy and culture.
• An annual remuneration report that sets out pay decisions, performance against targets, use of discretion and outcomes such as vesting or lapsing of awards.
• Evidence of shareholder engagement, including feedback received and how it influenced decisions.

Practical tips for effective committees

Plan the year in advance so key decisions, such as target setting and outcome assessment, are scheduled alongside financial and strategic milestones. Use dashboards to track performance metrics, risk indicators, stakeholder feedback and workforce pay data, and ensure meeting papers are concise, comparable over time and supported by robust modelling.