The lead up to the annual reporting season presents a valuable opportunity for companies to review their executive remuneration programs and disclosures. Reviewing these policies may help avoid a strike (and possible board spill), but is also essential to ensure they are relevant, competitive and add value to the organisation. Directors owe broad fiduciary responsibilities to companies they serve, particularly under the Corporations Act 2001 and the common law. This duty extends to the remuneration of Key Management Personnel, ensuring it is in the best interests of the company.
Arguably the most common and effective approach to variable pay is an incentive scheme that defines performance goals and what potential earnings are on offer should the goals be met. The performance goals can be individual objectives, team or company wide. The period over which performance is measured is typically annual however can be shorter such as monthly, quarterly.