How does the Combined Code define an independent nonexecutive director?

It does not give a definitive definition but it does say:

'The board should state its reasons if it determines that a director is independent notwithstanding the existence of relationships or circumstances which may appear relevant to its determination, including if the director:

has been an employee of the company or group within the last five years;

has, or has had within the last three years, a material business relationship with the company either directly, or as a partner, shareholder, director or senior employee of a body that has such a relationship with the company;

has received or receives additional remuneration from the company apart from a director's fee, participates in the company's share option or a performance-related pay scheme, or is a member of the company's pension scheme;

has close family ties with any of the company's advisors, directors or senior employees;

holds cross-directorships or has significant links with other directors through involvement in other companies or bodies;

represents a significant shareholder; or

has served on the board for more than nine years from the date of their first election.'

Does the Combined Code allow directors to have lengthy periods of notice?

It depends whether or not you consider a year to be a lengthy period.

The Code states:

'Notice or contract periods should be set at one year or less. If it is necessary to offer longer notice or contract periods to new directors recruited from outside, such periods should reduce to one year or less after the initial period.'

Not too long ago a notice period of three years was common and longer periods existed in some companies.

What does the Combined Code say about directors' remuneration?

It says quite a lot including the following:

'Levels of remuneration should be sufficient to attract, retain and motivate directors of the quality required to run the company successfully, but a company should avoid paying more than is necessary for this purpose. A significant proportion of executive directors' remuneration should be structured so as to link rewards to corporate and individual performance.'

'The remuneration committee should judge where to position their company relative to other companies. But they should use such comparisons with caution, in view of the risk of an upward ratchet of remuneration levels with no corresponding improvement in performance. They should also be sensitive to pay and employment conditions elsewhere in the group, especially when determining annual salary increases.'

'The performance-related elements of remuneration should form a significant proportion of the total remuneration package of executive directors and should be designed to align their interests with those of shareholders and to give these directors keen incentives to perform at the highest levels.'

'Levels of remuneration for non-executive directors should reflect the time commitment and responsibilities of the role. Remuneration for non-executive directors should not include share options. If, exceptionally, options are granted, shareholder approval should be sought in advance and any shares acquired by exercise of the options should be held until at least one year after the non-executive director leaves the board.'

The guidance in the Combined Code seems sensible but somehow directors' remuneration in listed companies goes up year after year. Why is this and is it "fat cattery"?

You are not the only person to have noticed the phenomenon. Every year for many years, in good times and bad, directors' remuneration in listed companies, on average, seems to rise faster than general inflation and faster than wages generally. There are companies and directors that buck the trend, but the general rule holds. It cannot go on for ever and in recent years investors have shown signs of restiveness. They now get an advisory vote on the directors' remuneration report at the annual general meeting.

Perhaps a clue to a possible reason lies in the second quotation from the Combined Code given in the previous answer. Directors frequently choose to position their remuneration in the upper quartile, or at or above average. It is a statistical impossibility for almost everyone to be paid above average, so these policies inevitably ratchet up the remuneration. Is it fat cattery? Perhaps it is and in the case of some banks critics have gone as far as to call it feline obesity. To coin a phrase "You can say that, but I could not possibly comment".


 
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