Who determines appropriate levels of remuneration for executive directors and senior managers?

The role of determining appropriate levels of remuneration for executive directors and senior managers typically falls to non-executive directors. This group primarily serves on the board to bring an objective viewpoint that is independent of the day-to-day management of the organization. Non-executive directors often have the expertise and experience necessary to evaluate compensation fairly, balancing the interests of shareholders and the need to attract and retain top talent for the organization.

Non-executive directors also help maintain governance standards and ensure that the remuneration packages set for executives align with corporate performance and shareholder interests, avoiding potential conflicts of interest that might arise if management were to set their own compensation levels. They are usually part of the remuneration committee, which is specifically tasked with reviewing and recommending pay structures and incentives for senior management based on performance metrics and industry benchmarks.

In contrast, other groups such as directors who are primarily involved in the management or senior management themselves might have biases or conflicts in setting their own pay levels, which could lead to inflated compensation that doesn't reflect actual performance or contributions. The board of executives may lack the independence critical in making unbiased remuneration decisions. Therefore, non-executive directors are best positioned to perform this function effectively.