A REPORT into executive remuneration has stopped short of recommending a binding vote on remuneration packages, but has made a series of recommendations to address levels of executive pay which are which are “sometimes very difficult to justify”.
The Executive Remuneration Working Group has published a report containing ten recommendations following consultation with more than 360 investors, asset owners and company employees.
While the new Government has outlined it may look to change the current advisory vote on remuneration reports to a binding vote, the report noted that the group had not had sufficient time to consider all the options and the impact such a policy change would have on market practice and the ability of UK companies to attract talent.
The report says that growing complexity in remuneration has contributed to poor alignment between executives, shareholders and the company, sometimes leading to levels of remuneration which are very difficult to justify.
It highlights the ubiquitous LTIP as one reason for this and says companies feel they are forced to adopt the model.
Among its ten recommendations, the report calls on boards to explain why they have chosen their company’s maximum pay level, with consideration of relativities such as pay ratios.
There are also calls on remuneration committees to be given the freedom to choose a structure most appropriate to each business’s requirements, and regularly put remuneration advice out to tender.
Committees should also disclose the process for setting bonus targets and also retrospectively disclose the performance range.
Chairman of the group, Nigel Wilson, said: “We need to restore public confidence in executive pay. Our report shows shareholders, boards and executives agree the current approach is not working, and want constructive collaboration to get it right.”
The Investment Association – which represents the UK’s £5.5 trillion asset management industry and served as the secretariat to the group – said it would review its principles of remuneration to consider the recommendations.
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