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Analysis of independent directors remuneration

Author: FengYuan From: www.yourpaper.net Posted: 2010-01-18 13:57:51 Read:
[Abstract] In order to solve the problem of the remuneration of the independent directors, and China from the 1990s and gradually began to listed companies, the introduction of the independent director system.
[] Reward directors system
With the development of the modern corporate system and to promote the restructuring of state-owned enterprises, China's listed companies are showing two development trend: on the one hand, with the height of the equity dispersed ownership and management of the company's high degree of separation, increasing specialization and complexity of the company's business, led to the emergence of professional managers, shareholders again difficult to direct and effective oversight of the company's management as before the separation of ownership and causing the company to produce "internal control problems, to the detriment of the interests of shareholders with the weakening of the owner of the supervision; On the other hand, issued after the reform of state-owned enterprises listed on the company, its controlling shareholder manipulate the shareholders' meeting and the board of directors of the phenomenon is very prominent Basically, the Board of Directors "agent" became the largest shareholder, a director of the Board of Directors are mainly appointed by the largest shareholder, the shareholders' meeting elected high degree of overlap, resulting in the Board of Directors and management layer, resulting in "internal" control problems, to the detriment of the listed the interests of the Company and its minority shareholders.
In order to solve the problem of the "internal" control from the 1990s and gradually began to listed companies, the introduction of the independent director system. China Securities Regulatory Commission in listed companies Prospectus Directive "released in December 1997, the establishment of the independent director system into the optional provisions; March 29, 1999, the State Economic and Trade Commission and the China Securities Regulatory Commission jointly issued "standardized operation and deepen the reform of opinions" on further promotion of overseas listed companies, require overseas listed companies to gradually establish and perfect the system of independent directors; August 21, 2001, released by the China Securities Regulatory Commission on the establishment of an independent director system in listed companies guidance "(hereinafter referred to as" guidance "), a clear definition of independent directors" Apart from the Directors other duties not in the company as they employed the listed company and its major shareholders do not exist that could hinder its independent and objective judgment the relationship between the directors ", which marks the system of independent directors of listed companies in China was officially launched.
First, the need to paid to the independent directors
Listed companies to pay compensation to hire an independent director, was originally a matter of course. Independent director system, however, there is its particularity, independent directors to serve on the listed company, but also independent of major shareholders in listed companies and operators, paid from the listed company may affect the independence of the independent directors lose value. So, in a paradox relationship between remuneration and independence of the independent directors.
Independent directors should or should not take money from listed companies, China's academic circles, there had been controversy. One view is that independent directors should not take money from listed companies, because the only way to ensure its independence (Wei Jie, 2001); Another view is that independent directors should take the money from the listed companies, because the only way to mobilize their enthusiasm (Zhong Peng, 2001). In fact, these two views of truth, only the former emphasizes more the external company insider checks and balances of power, while the latter is more emphasis on corporate governance incentives. In practice, people are more inclined to choose the latter, has gradually become the mainstream views of independent directors with its view of labor should receive remuneration for this view can be analyzed from the following two aspects:
(A) "economic man" hypothesis
Independent director is also the reality of the "economic man" alone reputation to maintain and can not guarantee that the independent directors will be able to integrity and work diligently, in the absence of other incentives they may not have enough power to effectively play a role, they can not obligatory for listed companies to work 160 hours a year. Let the independent directors truly perform their duties, apparently, is essential for appropriate remuneration to independent directors.
Zhong Peng has always advocated an independent director remuneration is, he said: "The independent directors and the president, are human capital expenditures, part of the team are entrepreneurs, only However, independent directors specializes in major decisions, while the president specializes in the implementation and management of human capital has the characteristics of its owner can not be separated, and only through incentives in order to allow them to make more contributions to the enterprise. "(2001)
Therefore, a certain way to give independent directors to their duties adapt remuneration is very necessary. The ratio of costs and benefits for the work of independent directors, the remuneration of the independent directors must meet the expenditure of its efforts to work, including the expenditure of time, effort, and risk.
(B) the rights, responsibilities and benefits of unity principle
Right and Interest unity is one of the basic requirements of the market economy, the market has become the resource allocation, and independent directors does not receive remuneration but want them to be held accountable is contrary to the objective economic laws. Independent directors to their own expertise and management experience to provide services for the company, but also in the process of the exercise of authority, facing the risk of reputation, responsibility, as convection conditions "(Guo Jing, Wu Ning, 2004), he should have enjoy the corresponding rights. The reward is an incentive in the form of the most important independent directors. But the current view China has the independent directors of listed companies, and its rewards are not high, and the remuneration of the executive director quite different, with the independent directors of the existing duties consistent.
Second, who gives the independent directors paid
The independence of the independent directors in listed companies in the availability of effective guarantee, the key problem is who decided to hire them, who determine their remuneration, which will decided they eventually standing who stand and who is responsible for this is where the core of all the problems.
Independent directors to be independent of the major shareholders, independent board of directors, independent operators, payment of remuneration to independent directors by any party will affect its independence, then, in the end The Who should pay compensation to the independent directors do? Many people think of minority shareholders should shoulder this task, so that independent directors to represent the interests of small shareholders, rather than the largest shareholder resolution harm small shareholders vote in favor of. But the reality is that the independent directors of the task is not only to safeguard the interests of small shareholders, but from the overall interests of listed companies, the interests of each interest group upheld. Therefore, the payment of remuneration of independent directors should also proceed from the point of view of the entire listed company, payment of remuneration proposed by the Board of Directors, and then submitted to the shareholders 'meeting to discuss what paid to the independent directors, decided by the shareholders' meeting.
Three independent directors remuneration in the form
With regard to the relationship between the remuneration in the form of independent directors to its independence in academia is also a focus of discussion. Payment of remuneration of the independent directors, there are two main forms, namely, fixed salaries and stock options. The following discusses the relationship between both of remuneration and the independence of the independent directors. (A) Fixed remuneration
The traditional way to pay independent directors remuneration mainly uses a fixed allowance system, including the annual fee and attend the conference fees, and has nothing to do with the company's performance. In the United Kingdom, the non-executive directors frequently attend meetings and perform related duties and can get paid. Sometimes also a non-executive director of the annuity and agreed by the Company to obtain reasonable costs, such as transportation and accommodation.
In the short term, the form of such payment is reasonable, because the independent directors of the workload and performance of the company may be a negative correlation - the company's problems more and more need Independent sensible to play a role, the greater the workload of independent directors. Therefore, the remuneration of independent directors and the company's short-term performance is linked to is not reasonable. In general, the fixed remuneration of independent directors will not pose a threat to their independence, because it is agreed in advance, and the working conditions and the performance of the company, the independent directors not associated.
However, the form of such payment there are drawbacks, because in a fixed period of time, the effort of independent directors, as well as to the benefits of the company is unable to measurable, since the remuneration is fixed and agreed in advance, as the independent directors of the "economic man" will be possible to reduce their workload, reducing the cost they need to pay. So, this remuneration in the form and not really fully mobilize the enthusiasm of the independent directors, is also concerned about the company's long-term interests of the independent directors can not be persuaded.
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