ILA’s new Effective Governance Guide – Board Committees Remuneration & Nomination

Interview with Marjolijne Droogleever Fortuyn

Businesses frequently stress the importance of talent to their operational activity, and this mindset should be fully reflected in the work of the board. Hence ILA's new publication "Effective Governance Guide – Board Committees Remuneration & Nomination" which details best practice and practical tips designed to help maximise the organisation’s effectiveness. 

ILA’s new Effective Governance Guide – Board Committees Remuneration & Nomination

 “Having the right leadership is essential to be able to implement strategy,” commented Marjolijne Droogleever Fortuyn, chair of the ILA Remuneration and Nomination Committee and member of the ILA Board. “This is why we wanted to write a guide to describe the practical steps required to establish best practice on this matter within the board and on new or existing remuneration and nomination committees,” she added. Just a few pages long, the guide takes an easy-to-follow step-by-step approach. 

Composition and appointment

Best practice regarding committee composition is described. Members should be full board members and ideally, they would be independent. Executive managers employed by the company should be excluded from membership of the committee. Required skills are also spelt out.

Ideas about the terms of appointment are described, with a suggestion to have limited mandates, such as a maximum tenure of three renewable three-year terms. It is recommended to have renewal of a part of the committee each year, facilitating the flow of fresh ideas and experience.

Frequency and outreach

The topic of meeting frequency is discussed, and how this relates to the plans and agenda of the full board. “It would be good to have the committee meetings a few weeks before the full board sits, as the remuneration and nomination committee can then prepare proposals which they can take to the board, which ultimately takes final decisions,” said Marjolijne. 

Ensuring sufficient contact with other stakeholders is another recommendation in the guide. “For instance, with the audit committee – which looks at incidents and audit risk issues –which might have an impact on remuneration or bonuses for executive committee members,” Marjolijne said. Contact with shareholders and employees is also good practice.  This helps, for instance, ensure that the remuneration policy that is adopted by the committee is well understood and has as much support as possible. Exchanges with the regulators on remuneration and nomination matters is also important. 

Practical assistance

The guide has a range of appendices which offer practical assistance. For example, there is an example of a standard agenda, including a list of some of the more challenging questions that need to be asked, and a reminder of the need to make enough time for these topics to be probed. “These include questions about whether the board has considered the need for sustainability skills, or if contingency plans are in place regarding the sudden departure of a member of the executive,” Marjolijne noted. An interactive tool is available to prepare terms of reference for the remuneration and nomination committee.  Another appendix features a self-assessment questionnaire for the committee.

There is also a compendium of the key domestic and European legislation on this subject, much of which is related to the financial sector. Complementing this are references to remuneration and nomination in the most important corporate governance codes, not least the The X Principles of Corporate Governance of the Luxembourg Stock Exchange . 

“This guide and these best practices can be applied in all sorts of companies, foundations, associations, and institutions,” Marjolijne noted. Yet she is quick to point out that this is not a static document, and that it will need to be updated as thinking about remuneration and nomination evolves. “If ILA members have any remarks or comments about the guide, they are invited to contact member of the remuneration and nomination committee, and we would be happy to look at these,” she said.

The guide is available as a pdf to download from the ILA library on the following link: Effective Governance Guide - Remuneration and Nomination