Company law has failed to provide a solution to excess pay - Essay Example

It can be seen that the remuneration committee has a great role to play in as far as maintenance of the appropriate level of the directors’ remuneration is concerned. The directors’ remuneration is mainly comprised of the following: salary, bonus, stock options, restricted share plans, pension among other benefits. There is a close link between agency problems that shareholders have in managing the directors. Berle and Means in case of the The Modern Corporation and Private Property (1932) have identified some problems that are caused by separation of ownership as well as control in US companies around the 1930s.

They realised that big companies had share ownership that is dispersed which entitled the board of directors to exert control over the company instead of the actual shareholders. If the directors run the company for their own benefit, this can cause significant problems since they may end up awarding themselves large pay packages as well as benefits. Thus, in order to resolve this crisis, the role of the remuneration committee has been put under spotlight by the Greenbury Report and The Code.

The Greenbury Committee was established after widespread public concerns were raised over the excessive amount of money paid to directors of both quoted newly privatized companies. When this code was published in 1995, it specifically dealt with the question of directors’ pay and the bulk of its recommendations were made from the earlier Cadbury Report. The Greenbury Report has recommended that directors’ pay should be linked to the company’s performance. It also tries to address the problem of rewarding directors who have failed to run the company but at the end of the day get away with handsome benefits.

The main aim of the remuneration committee is to prevent the directors from deciding their own levels of remuneration. The Greenbury Report has recommended that the