Board remuneration

The SOE Guidelines recommend that remuneration schemes for SOE boards foster the long term interest of the company and attract qualified professionals. In most countries, the remuneration of board members falls below market levels. Remuneration and incentives are often regulated and limited for both executives and board members. Some countries have policies to align pay with market rates, but not be market leading; others are considerably more restrictive. The models most commonly used are i) limiting remuneration to an attendance fee per board meeting; ii) capping directors’ remuneration at a multiple of average salaries in the SOE or the national economy; and iii) developing a "fee policy" taking into account factors such as the size of SOEs, time requirements and director qualifications. Attracting talent may be a challenge due to low remuneration; but other non-pecuniary benefits such as prestige, opportunities to build experience and networking attract talent to boards.

The SOE Guidelines indicate that a prime responsibility of the State as an active owner is to ensure that remuneration schemes serve the long term interest of the company and attract the right people. The annotations further refer towards the need to look at private sector remuneration practices.

SOE Guidelines, Guideline II.F on remuneration

In setting remuneration, Guideline II.F recommends that “the state as an active owner should [... ensure] that remuneration schemes for SOE board members foster the long term interest of the company and can attract and SOE motivate qualified professionals.”

In practice, in a majority of OECD countries, remuneration fall below market levels for the competencies and experience required, as well as for responsibilities involved. As a general rule, governments tend to regulate and limit the remuneration and incentive awards of both executives and board members of SOEs. Some countries have policies that seek to align pay with market rates but not be market leading. Others prescribe maximum remuneration levels. These prescriptions may be supplemented by prohibitions on share options, or restrictions on bonuses.

The remainder of this chapter examines board remuneration practices and considers the question of adequacy of remuneration vis-a-vis private sector companies. It also looks at the role boards have in setting.

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