Nomination and remuneration committee: A review of literature

Putra, Ferdy; Setiawan, Doddy Article Nomination and remuneration committee: A review of literature Journal of Capital Markets Studies (JCMS) Provided in Cooperation with: Turkish Capital Markets Association Suggested Citation: Putra, Ferdy; Setiawan, Doddy (2024) : Nomination and remuneration committee: A review of literature, Journal of Capital Markets Studies (JCMS), ISSN 2514-4774, Emerald, Bingley, Vol. 8, Iss. 1, pp. 126-168, https://doi.org/10.1108/JCMS-12-2023-0045 This Version is available at: https://hdl.handle.net/10419/313318 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/ Nomination and remuneration committee: a review of literature Ferdy Putra Riau University, Pekanbaru, Indonesia and Sebelas Maret University, Surakarta, Indonesia, and Doddy Setiawan Faculty of Economics and Business, Sebelas Maret University, Surakarta, Indonesia Abstract Purpose –This paper aims to synthesize the diverse literature on nomination and remuneration committees and provide avenues for future research. Design/methodology/approach –This study provides a comprehensive literature review of theoretical and empirical studies published in reputable international journals indexed by Scopus. Findings –The literature review reveals several aspects of the nomination and remuneration committee. These aspects have been classified into the definition of the nomination and remuneration committee, dimensions of the nomination and remuneration committee, measurement and research review results, reasons for conflict empirical findings, company dynamics and research on moderators, as well as recommending future research. Research limitations/implications –Our literature review shows that nomination and remuneration committees play a role in improving board performance and company performance, reducing agency conflicts and improving corporate governance to provide implications for companies, regulators and investors and pave the way for future research. Originality/value –This paper identifies issues related to nomination and remuneration committees, their theoretical and practical implications and avenues for future research. Keywords Corporate governance, Nomination and remuneration committee, Company board, Compensation, Company dynamics Paper type Literature review 1. Introduction Committees in a company are essential to safeguarding stakeholders’interests and maximizing shareholder wealth because these committees play a role in implementing good corporate governance. One of these committees is the nomination and remuneration committee. The nomination and remuneration committee is tasked professionally in the board selection process to avoid excessive intervention by the chief executive officer (CEO) or board chairmen and to provide recommendations and advice to the board regarding the issue of remuneration for board members (Al-Absy et al., 2018). The nomination committee, also known as the appointment committee, is responsible for recruiting and electing new directors and ensuring an impartial mechanism for selecting board members. In contrast, the remuneration committee develops policies relating to compensation (remuneration) so that JCMS 8,1 126 © Ferdy Putra and Doddy Setiawan. Published in Journal of Capital Markets Studies. Published by Emerald Publishing Limited. This article is published under the Creative Commons Attribution (CC BY 4.0) license. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this license may be seen at http://creativecommons.org/licences/by/4.0/ legalcode We would like to thank the Higher Education Funding Agency (BPPT) and the Indonesian Education Fund Management Agency (LPDP) for funding this research. The current issue and full text archive of this journal is available on Emerald Insight at: https://www.emerald.com/insight/2514-4774.htm Received 3 December 2023 Revised 3 March 2024 Accepted 13 March 2024 Journal of Capital Markets Studies Vol. 8 No. 1, 2024 pp. 126-168 Emerald Publishing Limited 2514-4774 DOI 10.1108/JCMS-12-2023-0045 the compensation system is designed not to benefit management at the expense of shareholders and other stakeholders (Puni and Anlesinya, 2020). Based on agency theory (Jensen and Meckling, 1976), this committee has a role that enables the board to perform its control role effectively. Meanwhile, from the perspective of resource dependence theory (Pfeffer and Salancik, 1978), the board is considered a pathopener between the company and its environment. Based on this view, the nominating committee aims to adapt the board’s composition to the demands posed by the company’s external environment (Ruigrok et al., 2006). Following these two theories, if a company is led by executives with good capabilities and supervised by knowledgeable board members (directors or commissioners) who are given appropriate remuneration, it will achieve a competitive advantage in its industry. This paper aims to provide a research synthesis regarding the importance of nomination and remuneration committees based on the perspectives of agency theory and resource dependence theory. From our search results, these two theories are the most frequently used and most suitable for use in articles. We have considered the various benefits of nomination and remuneration committees, explained the definitions of nomination and remuneration committees, measured nomination and remuneration committees, diversity within nomination and remuneration committees, conflicting findings and areas of future research. We have reviewed research that has been published in academic journals. Therefore, this study has recorded all the research results on nomination and remuneration committees. It will undoubtedly help researchers in the future who conduct research in this field. Our research has several contributions. First, we have provided a structured review of nomination and remuneration committee research. Of course, we hope that our research helps other researchers find new research ideas. Second, we have classified the nomination and remuneration committee research uniquely by categorizing it into six areas, namely the presence of the nomination and remuneration committee, the presence of independent directors and independence of the committee, gender diversity, nationality and skin color in the committee, the number of committee members and meetings, expertise, experience of monitoring and independence of the chairman, as well as the effectiveness of the nomination and remuneration committee. This classification will undoubtedly help researchers get a broad understanding of this committee. Third, we have identified future research on this committee, and we suggest that future researchers need to consider other diversity within this committee, such as educational background (accounting and finance, human resources and law), race, ethnicity, disability, language, religion, experience in the industrial world, experience as a member of the board (including this committee), experience in the field of human resources and age diversity. In addition, we have suggested future research questions and cross-country comparisons. Fourth, our research provides input for regulators and companies to create regulations that require the formation of these committees because their benefits are so great. Lastly, for investors, this research provides input for investing in companies that have this committee. Our literature review differs from previous qualitative and quantitative studies on nomination and remuneration committees. Mani et al. (2023) examined the board committee literature from the Web of Science database between 2002 and 2023. They found the composition of board committees, such as gender, independence and expertise, as well as factors that influence corporate governance, such as reporting quality, earnings management and board monitoring, all of which have had a significant impact on the board committee literature. One of their suggestions is to conduct further exploration of the nomination and remuneration committee. Nachemson-Ekwall and Mayer (2018) conducted a qualitative study comparing the nomination systems in the U.K. and Sweden. They saw similarities and significant differences in the nomination systems of the two countries, especially in terms of institutional investors. In qualitative research, Jerzemowska and Koyama (2020) discuss that Nomination and remuneration committee 127 there are three forms of board systems in Japan that are permitted under the Company Regulation (revised in 2014). The quantitative research of Gai et al. (2021), taking an observation period from 2001 to 2014 with a sample of 6,302, examines how the structure of USA boards of directors links multi-committee directors in responding to financial restatements. Ashraf et al. (2022) explore the relationship between board committee independence and corporate financial distress in China and the UK with a sample of 251 non-financial companies in the UK and 168 nonfinancial companies in China during 2007–2016. Harymawan et al. (2019) examined CEO busyness and company performance in Indonesia using 876 non-financial, insurance and real estate companies with an observation period of 2014–2017, and Harymawan et al. (2020) used the same sample to examine remuneration committees, executive remuneration and company performance in Indonesia. Mans-Kemp and Viviers (2019) used a sample of Top 40 index companies registered at the Johannesburg Stock Exchange and obtained 251 samples with a period of 2011–2016 to examine the role of nominating committees in board diversity in South Africa, while Kanapathippillai et al. (2016) used a sample of Top 200 Australian Securities Exchange (ASX) with period observation 2007–2011 to develop an index to investigate the effectiveness of remuneration committees and disclosure of remuneration narratives, and Chaudhry et al. (2020), using a sample of 50 non-financial companies registered in the Karachi Stock Exchange (KSE) 100 in 2016, examined the influence of the expertise of audit committee chairpersons and nominations on firm performance in Pakistan. Our research differs from previous research because we reviewed it by considering the nomination and remuneration committees they researched. We have organized the literature review into the following sections: literature identification and classification; the definition and importance of studying the nomination and remuneration committee; dimensions of the nomination and remuneration committee; measurement and research review results; overall synthesis and research agenda; and conclusion. 2. Identification and classification of literature We have reviewed the literature on nomination and remuneration committees for relevant articles published in the last 26 years in the Scopus index, articles ranging from Conyon and Peck (1998) to Edacherian et al. (2024). We chose the last 26 years because Conyon and Peck (1998) first raised the topic of remuneration committees and Shivdasani and Yermack (1999) raised the topic of nomination committees, and their research became a reference for other studies in subsequent years. Our search in Scopus used the keywords “nomination and remuneration committee,”“remuneration committee,”and “nomination committee”with the subjects of business, management and accounting, economics and econometrics, and finance. Furthermore, several appropriate studies were collected from several journals from quality publishers such as Emerald, Elsevier, Taylor & Francis, Wiley and Springer, as well as highly reputable journals. Articles that become the literature in this study must have a committee variable for nomination, remuneration, or compensation. This keyword search method aligns with upper-echelon review literature research (Bromiley and Rau, 2016) and board demographic diversity (Kagzi and Guha, 2018). Our research uses the Preferred Reporting Items for Systematic reviews and MetaAnalyses (PRISMA) method; we have identified nomination and remuneration committees as a core research topic and established criteria for articles to be sampled (inclusion criteria) as well as those to be excluded from the sample (exclusion criteria). First, the main focus of the article that we will use as a sample (inclusion criteria) is that the article explains the role of the nomination and remuneration committee in corporate governance, so the article uses this committee as a research variable both as an independent and dependent variable and as a JCMS 8,1 128 moderator variable. Figure 1 shows the stages of searching for articles in our sample using the PRISMA method. First, we searched the data using the keyword “nomination and remuneration committee”in the Scopus database and found a total of 42 studies. Then we did the same thing to search with each keyword, namely “nomination committee”and “remuneration committee.”For the keyword nomination committee, 170 articles were found, while for the keyword remuneration committee, 678 articles were found. Second, we skimmed each article to identify whether the article correctly used these committees as variables in its research. Third, for exclusion criteria, articles that use this committee as a control variable and that do not explain the role of this committee in corporate governance were removed from the sample. Finally, we also removed articles that were not in English, as well as articles whose journals were no longer listed in the SCImago Journal Country and Rank (SJR). In total, we included 61 published papers. Search through the Scopus database Articles with search keywords for the nomination committee (n = 170) Articles with search keywords for the remuneration committee (n = 678) Articles with search keywords for the nomination and remuneration committee (n = 42) Initial search total of articles (n = 890) The article was filtered because it did not feature the nomination and remuneration committee as a research topic (n = 817) The search results will be processed again (n = 61) Filtering the list of references from articles that will be the object of research (n= 61) Search result (n = 0) Articles relevant to this research (n = 61) articles not in English and journals not registered with SJR (n = 12) Source(s): Figure created by authors Figure 1. Stages of article search using the PRISMA method Nomination and remuneration committee 129 3. Definitions and significance of studying the nomination and remuneration committee In this section, we explain the definition of a nomination and remuneration committee and the importance of studying this committee. 3.1 Definitions of committee nominations The nomination and remuneration committee is a committee under the board tasked with assisting the board concerning the nomination and remuneration functions of the board. Nominations are nominations to be appointed to a firm board, while remuneration is compensation given to the board because of their position. Table 1 presents definitions and opinions regarding the nomination and remuneration committee. 3.2 The importance of studying the nomination and remuneration committee Agency theory is the dominant theory used when discussing company boards and committees (Alhossini et al.,2021;Ibrahim et al.,2022;Lu et al., 2022;Nguyen et al., 2020). Agency theory explains the existence of a contract between the owner (principal) and manager (agent) to manage the company. Agents will receive compensation in the form of salaries, bonuses, facilities and other compensation from the owner. The principal tries to maximize his welfare, while the agent is interested in meeting his personal needs by using company resources, or what is called opportunistic management behavior. The principal does not have enough information about the agent’s performance. Agents, as managers, have more information about the company. This is what causes information asymmetry. To overcome this, agency theory offers two views, namely by increasing the supervisory function or by aligning the interests of agents and principles through remuneration programs that satisfy agents so as to avoid management’s opportunistic behavior. The party whose job it is to monitor the performance of the board and the amount of remuneration they are entitled to receive is the nomination and remuneration committee, so the existence of this committee is very important in achieving company goals. This is in accordance with the opinion of Harymawan et al. (2020) that a higher level of compensation will result in higher company performance because it will reduce agency costs and information asymmetry. While Kanapathippillai et al. (2016) found that the remuneration committee functions as an important corporate governance mechanism because of the potential reputation and litigation risks faced by members of the remuneration committee, making them work effectively to influence the preparation of the annual report, which openly discloses their actions on executive remuneration, this action will be considered positively by investors and regulators. Resource dependence theory examines the beneficial impact of having this committee based on a resource perspective. This theory explains that companies use a diversity of resources to achieve company goals (Lu et al., 2022). Lu et al. (2022) say there are two assumptions related to resource dependency theory, namely that board composition is influenced by environmental context and needs and that different board compositions will produce different results. Meanwhile, Pfeffer and Salancik (1978) explain the role of the board of directors in a company from two perspectives. The first is the environmental interconnectedness perspective, which explains that board members with diverse backgrounds will provide many resources to the company. The second perspective explains that internal control and administrative actions will affect company efficiency. From the explanation of the two points of view above, it can be concluded that diversity and the right number of board members will improve the quality of company board resources, which will support the achievement of company goals. This is in accordance with the opinion of Kaczmarek et al. (2012), which states that the nomination committee is tasked with nominating board members and recommending the election of directors to the board, so this JCMS 8,1 130 committee plays an important role in determining the composition and diversity of the board, planning elections and ensuring that the board will be structured appropriately in carrying out its duties and functions. Hutchinson et al. (2015) said the nomination committee is a transparent and efficient mechanism for examining, selecting and appointing directors by the company, taking into Type Opinion Researcher Nomination The nomination committee should concern the company as it plays an essential role in nominating the right members of the executive and board of directors and eliminating ineffective board members Kaczmarek et al. (2012) Nomination The nomination committee is a committee that is responsible for selecting potential board members and assessing existing board members, as well as choosing the CEO who will be responsible for the company’s operations Chaudhry et al. (2020) Nomination The main task of this committee is to regularly review the composition of the board and make recommendations regarding the appointment of qualified candidates Mans-Kemp and Viviers (2019) Remuneration One of the duties of the nomination and remuneration committee is to manage (evaluate and recommend) board compensation so that the remuneration structure (salary, honorarium, incentives, and benefits) of directors and executives has been optimally determined to improve performance and reduce agency costs and information asymmetry Harymawan et al. (2020) Remuneration The remuneration committee is tasked with making recommendations to the board on the policy structure and all forms of remuneration for directors and top management, leading to the establishment of a formal and transparent procedure for developing policies on director remuneration Nyambia and Hamdan (2018) Remuneration The remuneration committee is a committee that has an essential role in supporting and advising the board on matters related to remuneration (for example, the level and composition of remuneration, disclosure of remuneration policies, and the process of determining remuneration and performance appraisal). So that there is alignment between the interests of shareholders, executive performance, and remuneration Kanapathippillai et al. (2016) Nomination and compensation (Remuneration) The nomination committee is tasked with ensuring that people with the best skills, qualifications, and expertise will be responsible for acting in the interests of shareholders and improving the company’s financial performance to add value to shareholders. At the same time, the compensation committee is responsible for board decisions regarding the payment of salaries, bonuses, commissions, and profit sharing by considering the directors’ qualifications, expertise, and past achievements in designing remuneration packages, along with the company’s financial constraints Ashraf et al. (2022) Source(s): Table created by authors Table 1. Definitions and opinions of the nomination and remuneration committee Nomination and remuneration committee 131 account the skills, experience, expertise and diversity of the board, so that this process will increase investor confidence. Furthermore, the nomination committee must also utilize all its capabilities and the company’s social environment to obtain quality board members. Edacherian et al. (2024) found a link between the nomination and remuneration committees of companies in India, providing them with access to human resources and information regarding appropriate incentive structures that will improve performance. So based on the two theories above, we conclude that it is very important to study the nomination and remuneration committee to maximize the alignment of interests of the principal and agent and to have superior resources on the board to achieve company goals. 4. Dimensions of the nomination and remuneration committee The observed attribute of the nomination and remuneration committee is the existence of a committee (Borlea et al., 2017;Eulaiwi et al., 2016;Harymawan et al., 2019;Hutchinson et al., 2015;Kanapathippillai et al., 2016;Kent et al., 2021;Puni and Anlesinya, 2020;Ruigrok et al., 2006;Saha and Kabra, 2022), independent director (board) presence and committee independence (Ashraf et al., 2022;Eulaiwi et al., 2016;Ismail et al., 2020;Nyambia and Hamdan, 2018;Vinjamury, 2020), gender diversity on the committee (Alkalbani et al., 2019; Kaczmarek et al., 2012;Mans-Kemp and Viviers, 2019), diversity of nationality and race on the committee (Kaczmarek et al., 2012;Mans-Kemp and Viviers, 2019;Ruigrok et al., 2006), number of members and frequency of committee meetings (Appiah and Chizema, 2016; Kanapathippillai et al., 2016), expertise, experience, monitoring and independence of the committee chairman (Chaudhry et al., 2020) and committee effectiveness or quality (Appiah and Chizema, 2016;Kanapathippillai et al., 2016,2019). 4.1 The existence of a nomination and remuneration committee Corporate governance codes around the world recommend separating corporate governance so that the nomination and remuneration committees become stand-alone committees within the corporate structure. It is due to the overwhelming evidence of CEOs dominating board members’ selection and evaluation of their performance and remuneration. This separation is necessary because it aligns the interests of owners and management; the nomination and remuneration committee maintains a reputation by recruiting directors and boards who work effectively and make better disclosures related to human resources (Saha and Kabra, 2022). The nomination committee is a committee that monitors the board, so it is responsible for providing information by providing independent views to shareholders, especially regarding nominations, performance evaluation, remuneration recommendations and human resource affairs for the board. Due to the busyness of the executive and board involved in the monitoring function, institutional investors and shareholders view the nomination committee as an important signal of the board’s ability to build and maintain independence (Shivdasani and Yermack, 1999). The presence of the nomination and remuneration committee in several studies shows increased access to resources to reduce agency costs, improving company performance (Harymawan et al., 2020;Vinjamury, 2020), board gender diversity (Hutchinson et al., 2015) and CEO compensation and executive (Kanapathippillai et al., 2016;Khan et al., 2023;Yarram and Rice, 2017). Table 2 presents several studies related to the presence of the nomination and remuneration committee. 4.2 The presence of an independent director or board and the independence of the nomination and remuneration committee Corporate governance regulations around the world suggest the presence of independent members on the nomination and remuneration committees. It increases this committee’s JCMS 8,1 132 Author Country Dependent variable Independent variable Result Saha and Kabra (2022) India voluntary disclosure index (VDI) Nomination and Remuneration Committee There is no Significant Shehadeh et al. (2022) Jordan Capital Structure Nomination and Remuneration Committee Negative no significant Vinjamury (2020) India Tobin’sq ROE ROA NPM Nomination and Remuneration Committee Positive Significant Positive Significant Positive no Significant Positive no Significant Berezinets et al. (2017) Russia Tobin’s q Komite Nomination and Remuneration Committee Negative Significant Nguyen and Soobaroyen (2022) United Kingdom CEO Compensation Nomination and Remuneration Committee Positive Significant Fauzi et al. (2017) Indonesia Tobin’s q Nomination and Remuneration Committee Negative Significant Romano and Guerrini (2012) Italy Financial reporting fraud Nomination and Remuneration Committee Positive Significant Puni and Anlesinya (2020) Ghana Firm performance (ROA, ROE, EPS, Tobin’sq) Nomination Committee Negative Significant Borlea et al. (2017) Romania ROA Tobin’sq Nomination Committee Positive no Significant Negative no Significant Appiah et al. (2016) Ghana Gender diversity Nomination Committee Positive no Significant Hutchinson et al. (2015) Australia Gender diversity Nomination Committee Positive no Significant Kent et al. (2021) Australia Employee disclosure Nomination Committee Positive Significant Harymawan et al. (2020) Indonesia Executive Remuneration Director Remuneration Total Remuneration ROA Tobin’sq ROE Remuneration Committee Positive Significant Negative no Significant Positive no Significant Positive Significant Positive Significant Positive no Significant Kang and Nanda (2017) India Total remuneration manager Remuneration Committee Positive no Significant (continued) Table 2. Research the presence of the nomination and remuneration committee Nomination and remuneration committee 133 moderates PPS to all executive directors’pay and CEO pay (Ntim et al., 2019). Al-Absy and AlMahari (2023) examine the moderating effect of nomination committee effectiveness. They found that the effectiveness of the nomination committee significantly positively moderated the relationship between the frequency of board meetings and the number of female directors and company performance. Meanwhile, Jhunjhunwala and Sharda (2023) found a negative moderating impact of busy nomination and remuneration committees and their participation on the relationship between innovation and Tobin’s q. Based on the research results above, we draw the conclusion that the moderating effect of the nomination and remuneration committee has a positive effect on board performance and company performance. 6. Overall synthesis and research agenda Existing research on nomination and remuneration committees has the potential to become an important area in the study of corporate governance. However, the findings should support the operationalization of board diversity, compensation (remuneration) and conflicting findings and explore various aspects of nomination and remuneration committees that have not yet been explored. Figures 2–4show the author’s country, authors and research evolution of the nomination and remuneration committee. In this picture, Spain is represented by authors such as Fern andez M endez C., Arrondo Garc ıa R. and Fern andez Rodr ıguez E. Furthermore, this research originating from Spain was continued by the United Kingdom (UK) with writers such as Collins G. Ntim, Sarah Lindop, Dennis A. Thomas, Hussein Abdoua and Kwaku K. Opong. This research from Spain was also continued in India with authors such as Rama Sastry Vinjamury, Shital Jhunjhunwala and Shweta Sharda, as well as in the United Arab Emirates with writer Tarek Roshdy Abdelhalem Gebba. Malaysia, as a member of the Association of Southeast Asian Nations (ASEAN), is the first country to write on this theme with authors Mujeeb Saif Mohsen Al-Absy, Ku Nor Izah Ku Ismail and Sitraselvi Chandren. Figure 4 shows that the themes that dominate the nomination and remuneration committee are the board, independence, composition, remuneration, firm performance, corporate governance mechanisms and family firm corporate governance. Figures 5–7show the countries, authors and research evolution of the nomination committee and figures 8–10 show the countries, authors and research evolution of the remuneration committee. Table 3 shows the number of citations from several Figure 2. Country author’s nomination and remuneration committee JCMS 8,1 140 previous studies, and Table 4 shows the evolution of nomination and remuneration committee research publications as a whole. Next, we will present future research opportunities. We group these research opportunities into: first, the existence of a nomination and remuneration committee; second, the presence of an independent director or board and the independence of the committee; third, diversity in gender, nationality and race (skin color); fourth, the number of members and frequency of meetings; fifth, the expertise, experience, monitoring and independence of the committee chairman; sixth, the effectiveness of the nomination and remuneration committee and seventh, other dimensions that have not been researched and are cross-country. Figure 3. Author’s nomination and remuneration committee Figure 4. Evolution of nomination and remuneration committee research Nomination and remuneration committee 141 First, for the existence of a nomination and remuneration committee, we suggest comparing companies that already have and do not have this committee, large and small companies, and then using this committee as a moderator variable for the relationship between board diversity and company performance, financial distress, bankruptcy and dividend payout. Second, we suggest that future research can use this committee independence as a moderator variable for the relationship between board busyness and board remuneration on company performance, bankruptcy, financial distress and dividend payout in family and non-family companies and test the direct relationship of committee independence to diversity and board independence in family and non-family companies. Thirdly, we recommend research to examine the relationship between gender diversity in the nomination and remuneration committee on company performance, financial distress, bankruptcy risk and dividend payout and make gender diversity on this committee a moderating variable to test the relationship between board gender diversity on company performance, financial distress, bankruptcy risk and dividend payout. Meanwhile, research opportunities for national diversity in nomination and remuneration committee members are to determine the effect of national diversity in Figure 5. Country author’s nomination committee Figure 6. Author’s nomination committee JCMS 8,1 142 nomination and remuneration committees on company performance, financial distress, bankruptcy risk, innovation and dividend payout. Furthermore, how does national diversity in nomination and remuneration committees moderate the relationship of board diversity to firm performance, financial distress, bankruptcy risk, innovation and dividend payout? Fourthly, we recommend examining the impact of the number of members and frequency of nomination and remuneration committee meetings on company performance, financial distress, bankruptcy risk and dividend payout. Furthermore, we can use the number of members and frequency of nomination and remuneration committee meetings as moderator variables for the relationship between board diversity and board remuneration on company performance, financial distress, bankruptcy risk and dividend payout. Fifth, we suggest investigating the influence of the expertise, experience, monitoring and independence of the chairman of the nomination and remuneration committee on firm performance, financial distress, bankruptcy risk, dividend payout, board diversity, busyness and board remuneration. Furthermore, it can be used as a moderator variable to determine the effect Figure 7. Evolution of nomination committee research Figure 8. Country author’s remuneration committee Nomination and remuneration committee 143 of board diversity and board remuneration on company performance, financial distress, bankruptcy risk and dividend payout. Sixth, future research opportunities are to examine the effectiveness of the nomination and remuneration committee on company performance, financial distress, bankruptcy risk, dividend payout, board diversity and board remuneration. Furthermore, the effectiveness of this committee can be used as a moderator variable that tests the effect of board diversity and board remuneration on company performance, financial distress, bankruptcy risk and dividend payout. Seventh, future researchers can study the effects of committee diversity that are rarely studied; we found this in board diversity, but we estimate it can be used in the diversity of nomination and remuneration committees, such as the race and ethnicity of board members Figure 9. Author’s remuneration committee Figure 10. Evolution of remuneration committee research JCMS 8,1 144 Author Title Citation Scopus Scholar Conyon and Peck (1998) Board Control, Remuneration Committees, and Top Management Compensation 462 1,219 Shivdasani and Yermack (1999) CEO Involvement in the Selection of New Board Members: An Empirical Analysis 708 1894 Ruigrok et al. (2006) The determinants and effects of board nomination committees 117 309 Kaczmarek et al. (2012) Antecedents of Board Composition: The Role of Nomination Committees 73 155 Hutchinson et al. (2015) Who selects the “right”directors? An examination of the association between board selection, gender diversity and outcomes 93 190 Kanapathippillai et al. (2016) Remuneration committee effectiveness and narrative remuneration disclosure 19 39 Appiah and Chizema (2016) The impact of board quality and nomination committee on corporate bankruptcy 12 30 Appiah et al. (2016) Nomination committee-board gender diversity nexus in Ghana 612 Eulaiwi et al. (2016) Multiple directorships, family ownership and the board nomination committee: International evidence from the GCC 42 57 Berezinets et al. (2017) Board structure, board committees and corporate performance in Russia 26 50 Yarram and Rice (2017) Executive compensation among Australian mining and nonmining firms: Risk taking, long and short-term incentives 210 Al-Absy et al. (2018) Board Chairmen’s Involvement in the Nomination and Remuneration Committees and Earnings Management 16 24 Mans-Kemp and Viviers (2019) The role of nomination committees in diversifying boards in an emerging market context 12 21 Ntim et al. (2019) Executive pay and performance: the moderating effect of CEO power and governance structure 66 138 Puni and Anlesinya (2020) Corporate governance mechanisms and firm performance in a developing country 69 216 Chaudhry et al. (2020) Impact of expertise of audit committee chair and nomination committee chair on financial performance of firm 24 60 Harymawan et al. (2020) Remuneration committees, executive remuneration, and firm performance in Indonesia 16 38 Gai et al. (2021) Board design and governance failures at peer firms 4 10 Ashraf et al. (2022) Does board committee independence affect financial distress likelihood? A comparison of China with the UK 816 Saha and Kabra (2022) Corporate governance and voluntary disclosure: evidence from India 10 22 Iannuzzi et al. (2023) Nomination committee characteristics and exposure to environmental, social and governance (ESG) controversies: evidence from European global systemically important banks 26 Van Zyl and MansKemp (2023) Insider perspectives on director remuneration governance deliberations 11 Fulgence et al. (2023) Board Effect and the Moderating Role of CEOs/CFOs on Corporate Governance Disclosure: Evidence from East Africa 03 Lagasio et al. (2023) May board committees reduce the probability of financial distress? A survival analysis on Italian listed companies 03 Edacherian et al. (2024) Connecting the right knots: The impact of board committee interlocks on the performance of Indian firms 01 Source(s): Table created by authors Table 3. Citation of articles on nomination and remuneration committees Nomination and remuneration committee 145 Author Negara asal Research question Research method Result Theory Conyon and Peck (1998) USA How is the oversight role of the board and remuneration committee in determining management compensation? Quantitative method with a sample of the Financial Times top 100 companies by market value in the UK during 1991– 1994 Top management pay and company performance are more closely aligned in companies with outsider-dominated boards and remuneration committees Agency theory and social comparison theory Shivdasani and Yermack (1999) USA Does CEO involvement in the selection of new directors affect the nature of board appointments? Quantitative methods with Fortune 500 non-financial companies during 1994–1995 When the CEO serves on a nominating committee or there is no nominating committee, companies appoint fewer independent outside directors and more outsiders who have conflicts of interest Agency theory Ruigrok et al. (2006) Switzerland What impact does the existence of a nomination committee and its composition have on board independence and board demographic diversity? Quantitative method, with a sample of 210 Swiss public companies from 2001 to 2003 Companies that have nomination committees tend to have a higher number of independent and foreign directors. The composition of the nomination committee is important in the nomination of independent and foreign directors Agency theory, resource dependence theory, and group effectiveness theory Kaczmarek et al. (2012) UK Does the diversity of nomination committees (gender and nationality) affect the diversity (gender and nationality) of corporate boards? Quantitative method with a sample of companies listed on the Financial Times and London Stock Exchange (FTSE) 350 during 1999–2008 The increased presence of women and non-British nationals on nominations committees will have a positive impact on the level of gender diversity and nationality on the board. The CEO on the nominating committee interacts with the independence of this committee, thereby exposing board demographic fault lines Social identity theory (continued) Table 4. Evolution of nomination and remuneration committee research publications JCMS 8,1 146 Author Negara asal Research question Research method Result Theory Hutchinson et al. (2015) Australia Does the presence of a designated nomination committee and the representation of women on the nomination committee affect gender diversity on the board? A quantitative method with a sample of the top 500 companies listed in Australia in 2007 and 2011 Gender diversity on the board is significantly and positively associated with the presence of an appointed nomination committee, and women’s representation on the nomination committee is a significant explanatory factor in increasing gender diversity on the board Agency Theory, stakeholder theory, Social identity theory, and resource dependence theory Kanapathippillai et al. (2016) Australia What is the impact of the effectiveness of the remuneration committee on narrative voluntary disclosure of information on remuneration? Quantitative method, with 673 observations of Australian companies during 2007–2011 The existence and quality of a remuneration committee play an important role in the decision to provide voluntary disclosure regarding remuneration measures and the extent of this disclosure Agency Theory Appiah and Chizema (2016) Ghana and UK How board quality influences the relationship between corporate bankruptcy and nomination committee effectiveness? Quantitative method, with 1,835 firm-year observations for 98 bankrupt and 269 nonbankrupt UK-listed nonfinancial firms between 1994 and 2011 Nomination committee effectiveness has a negative impact on corporate bankruptcy, and the interaction of board quality and nomination committee effectiveness has a significant negative relationship with corporate bankruptcy Agency theory and resource dependence theory (continued) Table 4. Nomination and remuneration committee 147 Author Negara asal Research question Research method Result Theory Eulaiwi et al. (2016) Australia dan Oman What is the relationship between outside board directorship and family ownership concentration? Quantitative method, with 1,091 firm-year observations of non-financial publicly listed firms from Gulf Cooperation Countries (GCC) during the 2005–2013 period There is a positive relationship between family ownership and the number of outside directorships held by board members. The existence of a nominating committee and the quality and characteristics of its membership suppress the positive relationship between outside directorship and family ownership Agency theory type 2 and institution-based theories Berezinets et al. (2017) Russia What is the relationship between board structure and company performance? Quantitative method, with a sample of 207 Russian companies during the period 2007–2011 Positive relationship between Tobin’s q and gender diversity on boards. There is no empirical evidence regarding significant differences in Tobin’sqvalues between companies that have nominations and remuneration for companies that do not have this committee Agency theory and resource dependence theory (continued) Table 4. JCMS 8,1 148 Author Negara asal Research question Research method Result Theory Yarram and Rice (2017) Australia How does the company determine the salaries of its executive employees? Quantitative method with a sample of 129 mining companies and 332 nonmining companies for the research period 2005–2013 Mining companies pay CEOs less overall than non-mining companies. The remuneration committee has a significant positive effect on the total salary of mining companies and an insignificant positive effect on non-mining companies. The remuneration committee moderates the influence of market capital on total salary in a significantly negative way in mining companies but not significantly in non-mining companies. When CEOs are on remuneration committees, they reduce the pay and performance sensitivity of long-term incentive pay at non-mining companies Optimal contracting theory (continued) Table 4. Nomination and remuneration committee 149 Author Negara asal Research question Research method Result Theory Iannuzzi et al. (2023) Italy Whether the characteristics of the nomination committee can serve as key attributes to reduce ESG disputes and whether the composition of the nomination committee influences the appointment of ESG-friendly directors to the board Quantitative method with a sample of 30 systemically important global banks from 2015 to 2021 A bank’s exposure to ESG controversies can be reduced when nominating committee members have at least one committee member who is a member of the sustainability committee and a foreign director. ESG disputes in banks are reduced when nomination committee members are younger, while the number of independent members has a negative impact. There is a positive influence on the composition of the nomination committee and the characteristics of its members, as well as the appointment of ESG-friendly directors on the board Agency theory and resource dependence theory (continued) Table 4. JCMS 8,1 156 Author Negara asal Research question Research method Result Theory Van Zyl and MansKemp (2023) South Africa What are the perspectives of asset managers and listed financial services companies in South Africa on the impact of voting and engagement on director pay policies and practices? Qualitative method with semistructured interviews conducted with asset managers, CEOs, chief financial officers, and remuneration committee members from listed financial services companies in South Africa Most asset managers and financial services representatives prefer proactive private involvement in pay issues, given its impact on voting outcomes and, ultimately, director remuneration practices and policies. The independent remuneration committee has an important role in facilitating relationships with investors to ensure fair remuneration Agency Theory (continued) Table 4. Nomination and remuneration committee 157 Author Negara asal Research question Research method Result Theory Fulgence et al. (2023) UK What is the influence of board size and board independence, as well as the interaction effect between board independence and CEO/CFO, on corporate governance disclosure practices? Quantitative method with 1,000 annual observations of companies from 2007 to 2017 in East Africa Large boards and independent directors are associated with greater CG information disclosure. CEO/CFO power negatively moderates the relationship between board independence and corporate governance disclosure, but not in environments with stronger institutions and corporate governance systems. Companies whose CEOs and CFOs are involved in remuneration or nomination committees disclose less CG information. The combined effect of the CEO and CFO on the nomination and remuneration committee and the independent board in reducing corporate disclosure appears to be more pronounced in the post-financial crisis period compared to the crisis period Agency theory (continued) Table 4. JCMS 8,1 158 Author Negara asal Research question Research method Result Theory Lagasio et al. (2023) Italy and France What is the influence of the composition and function of board committees on a company’s financial difficulties? Quantitative method with a sample of 273 listed companies in Italy during 2004–2017 Non-executive members on the remuneration and audit committees, as well as more remuneration committee meetings, can increase company stability. In contrast, a high frequency of nominating committee meetings appears to be positively associated with the likelihood of financial distress Agency theory Edacherian et al. (2024) United Arab Emirates, Netherlands and India What is the relationship between board interlocks and corporate performance, which is rooted in different perspectives on the role of the board of directors? Quantitative method with 5,133 annual observations of non-financial companies in India during 2014–2018 Interlocks between audit committees are negatively related to firm performance. In contrast, interlocks between the nomination and remuneration committees of Indian firms are positively related to performance Agency theory and resource dependence theory Source(s): Table created by authors Table 4. Nomination and remuneration committee 159 (Johnson et al., 2013), the disability of board members and the language used by board members (Piekkari et al., 2015), religion and education of board members (committee) (Çetin, 2021;DasGupta and Pathak, 2022;Lu and Wu, 2020), age and membership on other committees (Iannuzzi et al., 2023) experience in the industry, experience as a board member and experience in the field of human resources. This diversity can also be used to build measurements of the effectiveness of nomination and remuneration committees. Several researchers have summarized board diversity and attributes, which will facilitate further research (Lu et al., 2022;Nguyen et al., 2020). Future research can also use new variables that have been associated with board diversity, such as greenhouse gas (GHG) (Crichton et al., 2021;Tingbani et al., 2020), climate change (Crichton et al., 2021), environmental innovation (Farza et al., 2022), carbon emission and disclosure (Elleuch Lahyani, 2022;Fan et al., 2023), environmental, social and governance (ESG) (Menicucci and Paolucci, 2023;Wu et al., 2024;Yadav and Prashar, 2023), investment efficiency (Mirza et al., 2020;Tran Phuong et al., 2022;Ullah et al., 2020a,b) and earning management (Orazalin, 2019;Sial et al., 2019;Ullah et al., 2023). We also suggest crossing countries so that the research has a broader impact. We agree with previous systematic literature review (SLR) research (Alatawi et al., 2023;Alhossini et al., 2021;Lu et al., 2022; Nguyen et al., 2020) that our findings are dominated by quantitative research. For this reason, we recommend that further research use mixed methods and qualitative methods. Table 5 presents future research opportunities. 7. Conclusion The main aim of this research is to review in depth the nomination and remuneration committee. We identify what is known and not known about these committees around the world. We review theoretical and empirical studies related to the formation of these committees and their contribution to the firm. Nomination and remuneration committees are an interesting and important area of research in corporate governance because they are responsible for appointing and evaluating board performance and recommending board remuneration. This research analyzes 61 studies in various countries over the past 26 years from highly reputable international journals and quality publishers. Our research contributes to the topic of nomination and remuneration committees because: first, our review includes the definition of nomination and remuneration committees, the operationalization of committees, empirical findings and recommendations for future research. Second, we summarize everything related to the structure and characteristics of nomination and remuneration committees. We find that these committees improve board performance and company performance. Finally, we recommend seven nomination and remuneration committee topics for future research. We found from several papers that there are still many countries that have not required the formation of this committee, so companies in these countries have not yet formed this committee. Therefore, our literature review also makes a contribution to companies, regulators and investors. For regulators and companies, this research provides input to create a regulation that requires companies to form this committee because we found so many benefits. Meanwhile, investors should choose a company that has this committee as a place to invest. Our literature review has limitations, namely that we only review articles listed in the Scopus database search. For this reason, we recommend that further reviews be combined with other large databases such as EBSCOhost, Emerald Insight, Web of Science, ScienceDirect, SpringerLink, Wiley Online Library and Google Scholar. We hope that this literature review can help various parties understand the state of affairs and existing research regarding nomination and remuneration committees. JCMS 8,1 160 Research opportunities Suggested research questions Presence of the Nomination and Remuneration Committee How was the company’s performance before and after forming the nomination and remuneration committee? How is the performance of companies that form and do not form nomination and remuneration committees in large and small companies? Does the nomination and remuneration committee moderate the effect of board diversity on company performance, financial distress, bankruptcy, and dividend payout? The presence of an independent director or board and the independence of the nomination and remuneration committee Does the independence of the nomination and remuneration committee moderate the influence of the board’s busyness on company performance, financial distress, bankruptcy, and dividend payout? Does the independence of the nomination and remuneration committee moderate the effect of board remuneration on company performance, financial distress, bankruptcy, and dividend payout? Does the independence of nomination and remuneration committees affect the diversity and independence of boards in family and non-family companies? Diversity of gender, nationality, and race (skin color) in the nomination and remuneration committee How does the gender diversity of the nomination and remuneration committee affect company performance, financial distress, bankruptcy, and dividend payout? Does gender diversity in the nomination and remuneration committee moderate the effect of board gender diversity on company performance, financial distress, bankruptcy, and dividend payout? How does national diversity on the nomination and remuneration committee affect company performance, financial distress, bankruptcy risk, innovation, and dividend payout? Does national diversity on the nomination and remuneration committee moderate the effect of board diversity and board remuneration on company performance, financial distress, bankruptcy risk, innovation, and dividend payout? Number of members, Number of nomination and remuneration committee meetings How do the number of members and nominations and frequency of remuneration committee meetings affect company performance, financial distress, bankruptcy risk, dividend payout, board diversity, and board remuneration? Does the number of members and frequency of nomination and remuneration committee meetings moderate the effect of board diversity and board remuneration on company performance, financial distress, bankruptcy risk, and dividend payout? (continued) Table 5. Suggested research opportunities and questions Nomination and remuneration committee 161 Research opportunities Suggested research questions Expertise, experience, monitoring, and independence of the chairman of the nomination and remuneration committee How do the expertise, experience, monitoring, and independence of the chairman of the nomination and remuneration committee affect company performance, financial distress, bankruptcy risk, dividend payout, board diversity, board activity, and board remuneration? Do the expertise, experience, monitoring, and independence of the chairman of the nomination and remuneration committee moderate the effect of board diversity and board remuneration on company performance, financial distress, bankruptcy risk, and dividend payout? The effectiveness of the nomination and remuneration committee How does the effectiveness of the nomination and remuneration committee affect company performance, financial distress, bankruptcy risk, dividend payout, board diversity, and board remuneration? Does the effectiveness of the nomination and remuneration committee moderate the effect of board diversity and board remuneration on company performance, financial distress, bankruptcy risk, and dividend payout? Other dimensions and across countries How does diversity in race and ethnicity, disability, language, religion, age, education, industry experience, experience as a board member, and membership on other committees affect company performance, financial distress, bankruptcy risk, dividend payout, board diversity, board busyness, and board remuneration? Does race and ethnicity, disability, language, religion, age, education, experience in industry, experience as a board member, and membership on other committees moderate the effect of board diversity and remuneration on company performance, financial distress, bankruptcy risk, and dividend pay? Does the nomination and remuneration committee affect climate change, greenhouse gases, carbon emission disclosure, environmental innovation, investment efficiency, and earning management? Does the nomination and remuneration committee moderate the impact of board diversity on climate change, greenhouse gases, carbon emission disclosure, environmental innovation, environmental, social, and governance (ESG) investment efficiency, and earnings management? We also suggest making comparisons between countries and conducting cross-country research so that the research has a more broad impact Source(s): Table created by authors Table 5. JCMS 8,1 162 References Adams, R.B. and Ferreira, D. 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