Business Ethics and Corporate Governance, Second Edition

PAY AS A REWARD FOR PERFORMANCE

As there is a considerable stigma relating to excessive executive remuneration, schemes for such payments should be carefully and cautiously structured to ensure that compensations to directors and senior executives do reflect their performance and are in relation to their responsibilites and risks involved in carrying out their functions.

There is a growing acceptance internationally that equity-based remuneration including stock options is an effective way to match remuneration with performance. ‘Many sets of governance guidelines support the use of shares and options in remuneration packages. An appropriately designed share option scheme will help counter the economic problem of “agency costs”, in which the ...