Financial Risk Manager Part 1
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The remuneration of the board of directors is a critical aspect of corporate governance, influencing the board's ability to effectively oversee and guide the company. Which of the following statements about the board of directors' remuneration is correct?
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A
Directors may award themselves such salary payments as they think fit
B
Directors must receive a salary, just like other junior employees of the company
C
Directors only receive a salary if the constitution of the company explicitly allows it
D
Directors salaries are set by the HR department of the firm
Explanation:
Explanation
Option C is correct because directors' remuneration is governed by the company's constitution (articles of association) and corporate governance principles. Directors cannot simply award themselves salaries arbitrarily (Option A is incorrect). Directors are not required to receive salaries like junior employees (Option B is incorrect) - many directors, especially non-executive directors, may receive fees rather than salaries. Option D is incorrect because directors' remuneration is typically set by the remuneration committee or board, not the HR department.
Key Points:
- Directors' remuneration must be properly authorized and disclosed
- The company's constitution typically outlines the framework for director compensation
- Corporate governance best practices emphasize transparency and accountability in director remuneration
- Remuneration committees play a crucial role in setting appropriate compensation that aligns with company performance and shareholder interests
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