Authority
G. Evaluation and Education of the Board of Commissioners
2. Education and Training
In international practices, it is customary for commissioners to take vigorous executive and professional training before they are appointed to the Board.
In many multi-national corporations, it is compulsory to give commissioners (i) periodical corporate training, (ii) corporate governance training and (iii) evaluation of their performance. The training and evaluation of commissioners may be conducted internally or by a third party to ensure impartiality.
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The Board of Commissioners Evaluation and Education
The evaluation of the Board of Commissioners and its members can result in important insights into the Board’s strengths and weaknesses. This information can also be
used by the Board of Commissioners to identify training needs, both collectively and individually. Corporate training events take on added importance in the context of transitional economies, as commissioners need to be kept abreast of changes to the legal and regulatory framework, as well as best practices. All this makes a company education policy for the Board of Commissioners and its commissioners a key success factor in developing and supporting a competent, knowledgeable and vigilant Board.
Best Practices
A variety of organizations contribute to the professional development and training of commissioners. These include stock exchanges, financial institutions, government and industry regulators, business associations, chambers of commerce, institutions of higher education, institutes of commissioners and associations set up to promote good corporate governance practices.
Commissioner training is delivered primarily by two broad types of
organizations. One is corporate governance associations, which are devoted to improving corporate governance and provide training as one aspect of that effort. The other is organizations that are focused on commissioners and support, represent and set standards for commissioners. Both types of organizations can be membership associations, such as the National Association of Corporate Directors in the United States, the Institute of Directors in the United Kingdom, and the Brazilian Institute of Corporate Governance. They may serve commissioners without having a membership base, such as the Corporate Governance Centre in Kenya and the Corporate Governance Forum of Turkey.
Training can provide commissioners with:
• New skills
• Increased professionalism
• Greater awareness of relevant issues
• Access to current thinking on governance and other issues
• Opportunities to discuss issues with peers and mentors
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The Board of Commissioners The Remuneration of Commissioners
Members of the Board of Commissioners are given honorarium/service fees (uang jasa) including facility and/or other benefits, including tantieme and retirement benefit (santunan purna jabatan) in the amount determined by the GMS.
Details of the remuneration policy for commissioners generally and the remuneration of the individual commissioners should be disclosed in detail in the annual financial statements of the company. Details such as the annual salary and bonus of each commissioner must also be published in the annual financial statements. It should be an explicit item on the agenda of the Annual GMS in order to give shareholders the opportunity to debate over these matters.
The issue of commissioner remuneration is one of the more contentious in the field of corporate governance, and companies are advised to choose a cautious and circumspect approach to the question of Board of Commissioners remuneration. Excessive
compensation plans are often perceived as an unjustified privilege of power. Therefore, it is of the utmost importance that commissioner compensation be competitive, yet stay within reasonable limits.
H. The Remuneration of Commissioners
Best Practices
The remuneration payable to commissioners should be equal for all commissioners. Moreover, the fees that a company pays should be competitive, i.e. sufficient to attract competent individuals. They should be set so that they are neither very much below nor above commissioners fees paid at a peer group of companies. Setting a reasonable level of
commissioner remuneration is particularly important in order not to jeopardize the special status of independent commissioners. Independent or not, a commissioner’s judgment may be clouded if he/she receives a significant percentage of his/her total income in the form of a commissioner’s fee. A commissioner who relies on Board compensation for his/her livelihood will soon become beholden to the company and may not be relied upon to fill his/
her responsibilities in an unbiased manner.
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The Board of Commissioners The Remuneration of Commissioners
The Board of Commissioners should regularly review the remuneration of
commissioners. Pursuant to Article 66 of the ICL, the Board of Commissioners should review the company annual report submitted by the Board of Directors, part of which report deals with the Board of Commissioner remuneration.
Great care needs to be exercised in establishing performance-based remuneration, in particular, stock-based remuneration. Performance-based remuneration is generally considered a factor that impinges on commissioner independence.
Best Practices
Ideally, this should be done either by a remuneration committee, composed entirely of independent commissioners, or by the independent commissioners.
The company should disclose its remuneration plan and the remuneration of each commissioner, either on an individual basis or in the aggregate, in its annual report. The former is easiest to implement when all Board members receive the same fees with a simple statement in the annual report: “All commissioners receive fees of _____ per year.”
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The Board of Commissioners The Remuneration of Commissioners
Personal loans or credits to the company’s commissioners are also a minefield and a potential source of controversy that companies would be well advised to avoid.
Best Practices
While stock-based remuneration is common in the U.S., it is a good deal less common elsewhere and considerable controversy still surrounds it. Stock- based remuneration plans and, in particular, stock option plans are complex arrangements. While they are generally thought to provide incentives for commissioners and directors, they can also have a significant impact upon the company and shareholders.
• Stock options, it is argued, cause commissioners to focus on short-term performance and stock price movements
• If stock option grants are large, they may also create complicity between commissioners and directors who stand to make enormous sums from short-term price movements
• Shareholders risk share dilution when large option plans are granted
• Finally, large option grants have not prevented managers from manipulating companies and financial information to their benefit.
Consequently, option plans are coming under increasing scrutiny. Such plans require careful consideration, good planning, and special disclosure.
Companies may be best served by avoiding stock options for commissioners.
If a company chooses to implement stock option plans, it should be transparent about the costs in terms of share dilution. The company should also be transparent about the accounting methods used to measure the costs of stock and option grants. Best practices would call for shareholder approval of stock, or option based compensation plans that could dilute shareholder value or affect profits.
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The Board of Commissioners The Remuneration of Commissioners
Company Practices in Indonesia
The low level of remuneration compared to the importance of the Board of Commissioners is striking. Whatever the explanation, it seems clear that commissioner remuneration needs to receive greater attention. Transparent systems of remuneration, capable of attracting qualified commissioners, need to be put in place.
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