There is generally an aversion to linking compensation (the annual commission distribution) to performance because directors are uncomfortable with a competitive situation. Several arguments are advanced against it. Obviously, those who do not make the effort do not want it. The few who do, do not want to appear “greedy” for money. But nobody is able to explain why a director should rise above the normal call of her or his duty to deliver more than his peers if his only reward is a very private expression of gratitude by the chair. This may be acceptable in a not-for-profit’s board; why should a director do philanthropy to those engaged in the business of making money?
Nawshir Mirza, was with S R Batliboi & Co, Chartered Accountants, till his (early) retirement. Here he shares his view on ‘Linking Board Evaluations to Director Remuneration.’ To read his guest blog click on this link.