Optimise your remuneration governance with an effective remuneration framework

A remuneration framework defines the company’s remuneration governance system, purpose, strategy, and commitment to appropriately and consistently managing KMP remuneration matters for the organisation. The framework will define what policies, procedures, incentive plan rules and controls are needed for overall good governance and will be the point of reference for remuneration decision making.

Components of an effective Remuneration Framework

APRA regulated entities are required to engage an independent party to review their remuneration framework against the requirements of APRA CPA 511 and CPG 511, and to assess efficacy, at least once every 3 years. Further, a remuneration framework also must be reviewed and updated to comply with an evolving regulatory landscape, as changes can significantly impact corporate remuneration requirements, with a risk on noncompliance. Areas of consistent review that impact remuneration governance are:

  • The Corporations Act 2001
  • ASX Listing Rules and Guidance Notes
  • ASX Corporate Governance Council’s Principles and Recommendations
  • ASIC Regulations and Guidelines
  • Employee Share Scheme taxing provisions
  • APRA – Requirements for APRA Regulated Entities

Over time we have also observed that with board turnover and role changes, committees can end up “reinventing the wheel” each time they revisit an issue, particularly when aspects of remuneration are only deeply reviewed each three years or so, such as in the case of long term incentives. Many problems arise from inconsistent decision making and the lack of a commonly shared or agreed set of principles that are best outlined in a framework and can serve to efficiently inform and align new board or committee members.

GRG creates capabilities that improve your remuneration framework, corporate governance and strategies

Remuneration committees and/or decision makers use GRG as a trusted advisor to develop, review and draft KMP remuneration governance frameworks that overcome the inevitable changes in both board composition and governance landscape.

We aim to provide capabilities for:

  • A foundation for optimal performance and decision making of the board
  • Alignment and transparency of performance and rewards
  • Effective management of incentives related to conduct risk
  • Strike Risk Management and other Risks, such as regulatory noncompliance
  • Transparency for all stakeholders/ shareholders and KMP.

Independent Remuneration Governance Framework Review and Advice

Whether it be to comply with APRA’s requirement for an independent review of your Remuneration Governance Framework, or for compliance reasons due to a change in regulation, GRG can review and report to you on your current Remuneration Framework, or specific components thereof, while also providing expert advice to enhance the status quo. Our experienced consultants can help you every step of the way.

Remuneration Governance Policy Drafting and Templates

GRG provide formal documentation for all remuneration policies, procedures and plans linked to executive and NED remuneration. These documents provide a foundation to enable good governance practices, such as enabling clawback of executive incentives or enabling shareholding for the members of the Board. Provided as either an initial draft template or bespoke original, each remuneration policy and procedure is expertly crafted and provided to consider the needs of the board, compliance obligations and shareholders expectation.

FAQ: What are the components of an effective Remuneration Framework?

Outlines the principles underpinning executive remuneration governance, including desirable elements of remuneration, intended market positioning and processes to establish and regularly review executive remuneration, focussing on the link between performance and reward.

Outlines the principles underpinning short term variable remuneration (STVR) applicable to executives, including processes to annually review and calibrate the suitability and difficulty of performance hurdles against the Variable Remuneration Framework.

Defines the rules, terms, conditions and, annually, the specific performance hurdles that form the link between performance and reward over a 1-year period.

Outlines the principles underpinning long term variable remuneration (LTVR) applicable to executives, including processes to annually review and calibrate the suitability and difficulty of performance hurdles against the Variable Remuneration Framework.

Defines the rules, terms, conditions and the specific performance hurdles that form the link between performance and reward over a 3-year period.

Empowers the board to recover overpayments of variable remuneration (“Clawback”) or adjust future remuneration opportunities that are on-foot (“Malus”) to ensure that variable remuneration outcomes are appropriate and aligned with the experiences and expectations of stakeholders.

Outlines the principles underpinning non-executive director (NED) remuneration governance, including desirable elements of remuneration, intended market positioning and processes to establish and regularly review NED remuneration, focussing on preserving NED independence.

Outlines the principles underpinning the design and implementation of equity-based remuneration structures for NEDs, focussed on creating alignment with shareholders while preserving NED independence.

Defines the rules, terms and conditions that form the equity component of fees for NEDs who elect to participate.

In order to make informed and objective decisions in relation to the remuneration of key management personnel, the Board may engage external remuneration consultants (ERCs) to provide independent professional advice on remuneration matters. The ERC engagement policy is designed to ensure that KMP remuneration advice received is independent and free from undue influence. The policy also serves to ensure that the Board and suppliers are aware of and comply with applicable Corporations Act requirements, so that unintended breaches of the law can be avoided.

Empowers the board to require that selected executive and NED KMP acquire and hold specified levels of shares in the Company to provide “skin-in-the-game” alignment with shareholders, above and beyond variable remuneration structures, including processes to enforce such requirements.

A policy that restricts the purchase and disposal of Company securities by its directors and employees.  Its purpose is to minimise the possibility of misuse of price sensitive information and potential reputational damage for the Company and its Board that can arise from transactions in the Company’s securities. The policy defines and communicates either blackout periods when securities may not be bought or sold or trading windows when securities may be bought or sold provided the individual is not precluded by the Corporations Act from undertaking transactions in the company’s securities due to inside information.

Outlines the principles underpinning the disclosure of KMP remuneration by the company, including a commitment to go beyond statutory requirements to ensure that sufficient information is provided for shareholders to fully evaluate the quality of KMP remuneration governance, policies and practices.

Outlines what needs to be done and when.

Optimise your remuneration governance with an effective remuneration framework
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Find out more about
GRG’s Remuneration Framework services

Our team are here to help. Find out how GRG can assist with your remuneration framework. GRG have multiple solutions that provide boards with additional capabilities that improve corporate governance and strategies, including:

  • Independent review as required by APRA
  • Advice to optimise your framework and its elements
  • Policy templates
  • Bespoke policy drafting – tailored to the needs of your remuneration committee, regulators and shareholders