Association of Chartered Certified Accountants (ACCA) Certification Practice Test

What is one purpose of the Remuneration Committee?

1. To handle inflation-related issues

2. To determine executive compensation packages

3. To oversee regulatory compliance

4. To manage shareholder meetings

The correct answer is: To determine executive compensation packages

The Remuneration Committee plays a crucial role in an organization's governance structure, primarily focusing on determining executive compensation packages. This involves evaluating and setting compensation levels for top executives, including salaries, bonuses, stock options, and other incentives. The committee aims to ensure that the pay structure aligns with the company's performance, strategy, and overall objectives while also taking into consideration market benchmarks and shareholder interests. The work of the Remuneration Committee is vital in promoting transparency, fairness, and accountability in how executives are compensated. By carefully assessing the performance criteria and linking pay to the achievement of these targets, the committee helps facilitate a performance-oriented culture within the organization, which can drive better results and enhance shareholder value. In contrast, other options focus on unrelated functions. Handling inflation-related issues pertains more to financial planning and analysis rather than compensation. Overseeing regulatory compliance involves ensuring that the organization adheres to laws and regulations, which is typically the role of an audit or compliance committee. Managing shareholder meetings concerns governance and communication with shareholders, which is separate from the specific focus of compensation determinations that the Remuneration Committee handles.