Answer: develop director remuneration policies.

## Explanation **Correct Answer: B - develop director remuneration policies.** ### Why Option B is Correct: 1. **Primary Role of Compensation Committee**: According to good corporate governance practices, the compensation committee (also known as the remuneration committee) is primarily responsible for establishing and overseeing executive and director compensation policies. 2. **Independence Requirement**: Compensation committees should be composed entirely of independent directors to avoid conflicts of interest. Including company executives (Option A) would compromise this independence. 3. **External Auditor Remuneration**: The audit committee, not the compensation committee, typically oversees the external auditor relationship, including their remuneration (Option C). ### Key Corporate Governance Principles: - **Independence**: Compensation committees should consist solely of independent, non-executive directors to ensure objective decision-making about executive pay. - **Separation of Duties**: Different committees have distinct responsibilities: - **Compensation Committee**: Executive and director compensation - **Audit Committee**: External auditor oversight and remuneration - **Nomination Committee**: Board composition and director appointments - **Transparency**: Compensation committees should ensure pay structures align with company performance and shareholder interests. ### Why Other Options Are Incorrect: - **Option A**: Including company executives creates conflicts of interest, as executives would be involved in setting their own or their colleagues' compensation. - **Option C**: External auditor remuneration is typically handled by the audit committee to maintain auditor independence and proper oversight of the audit function. **Best Practice**: Compensation committees should develop clear, performance-based remuneration policies that align executive and director compensation with long-term shareholder value creation while ensuring transparency and accountability.

Author: LeetQuiz .