What are Compensation Committee and Its Objectives?
Compensation committee is created to improve the efficiency and quality of the Board of Directors’ work. Its main function is preliminary consideration and development of recommendations to the Board of Directors in the field of forming an effective and transparent remuneration practice in the Company, in the field of personnel planning (succession planning) in the Company.
The Committee is established on a permanent basis by the decision of the Board of Directors of the Company and is an advisory body ensuring the effective performance by the Board of Directors of the Company and the executive bodies of the Company of their functions for the general management of the Company’s activities. The Committee is not a body of the Society and is not entitled to act on behalf of the Society. The decisions of the Committee are of a recommendatory nature for the Board of Directors.
The committee is obliged to:
- define a framework or general remuneration policy (including pension compensations and any compensation payments) for the Chairman, CEO (s), Company secretary and other members of the executive management, as deemed by the Board (Executive Group) and ensure that a formalized and transparent procedure is in place determination of remuneration (the issue of remuneration of directors without executive powers is decided by the Chairman of the Board and members of the Board with executive powers within the limits established by the Charter of the Company and the Remuneration Policy approved by the shareholders of the Company);
- take into account all factors necessary in determining the compensation policy, including, but not limited to, relevant statutory and regulatory requirements, the provisions and recommendations of the Corporate Governance Code and other such guidance as the Committee considers important. Ensure the existence of a formalized and transparent procedure for the development of such a compensation policy, the purpose of which is to support the strategy and promote long-term sustainable success, taking into account the parameters of the Company’s acceptable risk;
- compensation of the executive director (s) must be consistent with the goals and values of the Company and be clearly linked to the successful implementation of the long-term strategy of the Company.
Consider the following when determining compensation policies and methods:
- compensation mechanisms should be transparent and facilitate effective communication with shareholders and employees;
- reward mechanisms should not be complex, and their meaning and action should be easy to understand;
- reward mechanisms should ensure that the following risks are identified and mitigated: reputational and other risks associated with excessive remuneration, as well as behavioral risks that may arise in connection with incentive plans based on targets;
- the range of possible compensation value for specific directors, as well as any other restrictions or discretionary powers, should be determined and explained at the stage of policy approval;
- there must be a clear connection between individual incentives and strategy implementation and the long-term performance of the Company, and results must not reward poor performance;
- motivational schemes should stimulate behavior consistent with the goals, values and strategy of the company.