ACCA Advanced Audit and Assurance (AAA) Practice Exam

What is the primary responsibility of the remuneration committee?

1. To manage company operations

2. To establish company-wide strategic goals

3. To set remuneration for the chair and executive directors

4. To approve shareholder proposals

The correct answer is: To set remuneration for the chair and executive directors

The primary responsibility of the remuneration committee is to set remuneration for the chair and executive directors. This committee plays a crucial role in ensuring that the compensation packages for senior management are aligned with the company's objectives and in the best interests of shareholders. By determining competitive and fair remuneration, the committee helps attract and retain talented individuals in key leadership positions, which is vital for the overall performance of the organization. Additionally, the remuneration committee typically assesses executive performance and may link pay to performance metrics, thereby promoting accountability and transparency within the company's compensation practices. By doing so, the committee helps maintain governance standards and manage potential conflicts of interest that may arise with executive compensation. In contrast, managing company operations typically falls under the responsibilities of executive management, while establishing company-wide strategic goals is a function of the board as a whole. Approving shareholder proposals usually involves the shareholders themselves or the board, making these choices less relevant to the specific duties allocated to the remuneration committee.