This content is from: Local Insights

Compensation committee required of listing companies

Chun-yih Cheng

In order to ensure the sound operation of listing companies and address the general public's concerns regarding fat cat pay to senior executives, Taiwan's legislative body has amended the Securities and Exchange Law to require that all listing companies, ie those trading on the Taiwan Stock Exchange (TSE) and the Gre Tai Securities Market (Gre Tai), should establish their respective compensation committees.

The qualifications of the members and the competence of the compensation committees will be further promulgated by the Financial Supervisory Commission, the financial watchdog in Taiwan.

The new system stems from foreign experiences, which usually require independent directors to form or lead the compensation committees. However, in Taiwan, only financial institutions as well as those listing companies with paid-in capital of 50 billion New Taiwan Dollars ($1.6 billion) and recent entrant listing companies are required to have independent directors.

Therefore, only 39% of TSE listing companies and 67% of Gre Tai listing companies have independent directors. The other companies may have their options to maintain the traditional supervisor system.

Since not all listing companies have independent directors to form or lead the compensation committee, the FSC plans to relax the qualifications of the members of compensation committees to include so-called "fair and just persons" ie reputable persons who are perceived by the society to be neutral and impartial.

However, the criticism from commentators is that the main functions of compensation committees are the design and planning of salaries, stock options and other incentives to senior executives; fair and just persons may not be familiar with the commercial world such that appropriate compensation systems may not be developed to fit the exact needs of listing companies.

Chun-yih Cheng

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