Executive pay: a new direction
Before the Olympics took over, barely a day passed without a mention of executive remuneration in the media, whether in relation to bankers’ bonuses or the size of exit payment on the departure of a director. Is this ongoing scrutiny of executive pay justified?
For many readers of the UK press, the amounts paid to senior executives of UK listed companies for one year’s work will dwarf the amount they earn over a lifetime. And even the leading news outlets are not immune to the temptation of attention-grabbing headlines highlighting the gulf between the pay of business leaders and much of the rest of the population.
How can organisations manage the message better? Perhaps media reaction would be less damning if companies prepared the ground more carefully, taking the shocks out of the system by clearer reporting of their directors’ remuneration.
For ten years, we have looked at the quality of reporting of directors’ remuneration in FTSE 100 companies as part of the PwC Building Public Trust Awards. In identifying a shortlist of companies showing best practice reporting, we consider the transparency of the remuneration report and the clarity of the link between reward and corporate performance. We also look for evidence of the committee taking the lead on how remuneration is based on performance outcomes. The winner of this year’s BPTA for the reporting of Executive Remuneration will be announced on 22 November 2012.
The Government has also questioned the inequality between pay for senior roles in UK organisations and the more modest levels in the wider population. As a result, the Government has been consulting with the public on the accountability of listed companies to their shareholders over directors’ pay and its disclosure for almost a year and draft legislation has now been laid before Parliament. The purpose of the legislation is to provide shareholders with the ability to veto proposed remuneration policy before it is put into effect through a binding resolution. Once shareholders have approved remuneration policy, only payments that are consistent with that policy can be made.
The Government is also proposing new disclosure regulations that are intended to provide greater insight into the overall value of remuneration received and its alignment with corporate performance. A number of features of the new requirements reflect the criteria that we have used to assess remuneration reports for the BPTA in recent years. Two fellow partners - Tom Gosling and Sean O’Hare said in their recent webcast that the new regulations will improve the quality of reporting of directors’ remuneration reporting, through greater transparency and simplicity. Much of the detailed reporting will emerge over time through guidance and market practice. The challenge for preparers of the new-style remuneration reports will be meeting the legislative requirements in a way that effectively communicates the key messages.
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