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Board committees
Audit committee Nom-cum-Rem committee Executive committee Ad hoc committees

Terms of Reference Of Audit Committee • Suitable measures to protect assets of the company • Review of financial statements • Facilitate external audit • Assessment of management letter • Communication b/w external and internal auditors • Internal control systems • Considerations of special projects .

the Board decides who to recommend to shareholders. chaired by Board chairman or an NED. 4 . Nominations Committee should comprise of NEDs.Nominations Committee Formalization of the process: Principally aimed at looking for EDs and NEDs Only recommends.

Assess time and involvement required Performance evaluation of all directors Succession planning Review board size and structure 5 . rank them. evaluate them.Duties of Nomination Committee Identify suitable candidates.

Nominations Committees in Pakistan Do they exist? Do we need them? If we had them. would they be effective? What can be done to ensure that they are effective? 6 .

Formal evaluation form: – – – – Weightage of qualities Balance needed at the board Eligibility Other commitments 7 .Practical Aspects of Board Appointments Use head hunters Use contacts. trade associations. professional bodies. etc.

8 . etc. say in law.Directors’ Induction Visits to key locations Product/Departmental presentations Meetings with senior management / staff Meetings with major shareholders Meetings with external advisers of the company Formal training. where needed. technical aspects of the company.

Formal evaluation of NED before proposal to re-elect them. 9 .Issues of Re-election Re-election after a prescribed period. Limit on number of re-elections: – By law on certain companies – By AOA Board to explain to shareholders why any particular NED is being proposed.

re-election of NED beyond 2 terms should be discouraged. 10 .Issues of Re-election Even if AOA allow.

or NED to ED Orderly.Succession Planning Succession of EDs – CEO / Chairman Succession of NEDs Aspects of Succession: – – – – Outside appointments Grooming of existing EDs Movement from ED to NED. efficient and effective 11 .

Remuneration Committee Comprises generally of INEDs. Ensure directors’ conduct by: – Not allowing additional fees – Not allowing any other linkages with the company Evaluate actual computation of bonuses Must produce a report for shareholders 12 . Can get professional advice in setting suitable basis of directors’ remuneration.

bonus.Remuneration Committee Set remuneration policy – Covering all aspects like pay. perks Maintain its independence Set performance targets and basis of measurement Stay aware of what is happening in the corporate world – and its remunerations Disclosure per law / practice 13 . severance.

How much disclosure? Remuneration policy Names of members of remuneration committee Details of all payments / options / benefits given to each director and how they were computed Link between directors remuneration and company performance. 14 .

Role of Shareholders Approve Remuneration Policy. Get a report from Remuneration Committee Approve remuneration package of each and all directors 15 .

Public Concerns Board decides what to pay its members. – True shareholders approve. Relationship between effort and results. 16 . Distinction between greed and justifiable remuneration for services. but they seldom turn down Board’s recommendation.

Promotes status quo mentality Restricts initiative and entrepreneurship Promotes mobility of directors 17 .The Salary Only Approach Does not provide enough motivation.

this loses sight of the difference between efforts and results.Performance Based Pay Promotes incentive / motivation Targets must be realistic Measurement of achievement should be reliable and transparent However. 18 .

directors’ pay must have an assured pay plus a performance related element. – Results based element is an incentive – so a higher portion should be results based. 19 .Balance in Remuneration Ideally. but it may promote fudging of results – Too high an assured element may lead to complacence. How to keep a balance between “assured” and “results-based” pay elements.

Balance in Remuneration Known before the performance – Salary and perks Computed after the performance – Bonuses tied to results Balance between short term and long term rewards. – Annual Component – Long Term Component 20 .

Long Term Remuneration Free shares (stock awards) Share options – For the year – Every year on an ascending scale 21 .

market share) – Defining the base figure  Measurement of the base figure – Short term impact – Long term impact of base figure change  Intent in setting the above two. 22 .Determination of Bonus  What should be bonus based on? – Profits or volume (e.g.

23 . stretching and designed to enhance shareholders value. All schemes should be approved by shareholders All targets should coincide with company’s objectives. Consideration should be given to long term incentive schemes.Provisions of CC of CG Bonus basis should be relevant.

NEDs generally get only meeting fees.NED’s Remuneration USA. In Pakistan. If it were to be assumed that NEDs are a potent way of getting good governance. Fear of persecution is negative. Europe and FE countries pay significantly to NEDs. they must be provided a “motive” to do well. 24 .

Executive committee Look at Issues need to be presented to the board Granted powers to make decisions (up to specific limit) Exceeds the power then Ex-Com present it to the board Both EDs and NEDs .

Ad hoc committees Investigation committee Negotiation committee Project committee Communication committee .

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