Role of remuneration committee

　　Remuneration will be set by the remuneration committee taking into account the amount of compensation being paid by comparable companies. No information is provided in the scenario regarding other companied; however, it is not clear whether the board of TY are actually meeting governance regulations in this area. The directors appear to be discussing methods of increasing their remuneration following the fall in profits with the fine. This decision should be taken by the remuneration committee, ensuring that no director is also responsible for setting their own remuneration. The committee removes any conflict of interest in this area.

　　Performance-related elements of remuneration

　　Performance related remuneration is defined as those elements of remuneration dependent on the achievement of some form of performance-measurement criteria.Care must be taken in determining the elements of performance related remuneration.For example, if the market goes down as a whole, then this could potentially penalise directors for an outcome that has nothing to do with their

　　performance. In other words, the performance related element should be linked to the performance of the company and not to the stock markets as a whole.

　　TY and JK have chosen different methods of doing this.

　　TY Company-proportion of profit

　　Part of remuneration is based on the profit for the year. At 40%, this is a relatively high amount as it tends to focus the directors on achieving a high profit in absolute terms, and could lead to attempts to amend the financial statements to increase profit. The imposition of the fine on TY has had the immediate effect of making the directors try and amend their remuneration package, again indicating that reliance on profit may be too high.