Consultant Mercer has welcomed many of the proposals made by the BEIS select committee report into UK corporate governance, but cautioned against a blanket ban on the use of long-term incentive plans (LTIs). LTIs are essential in the management of reward risk, ensuring that executives are accountable for their decisions over the longer term, Mercer argues.
The BEIS report also recommends that employers publish pay ratios between CEOs and both the senior executive team and the median of all UK employees. Mercer says this proposal is fraught with difficulty and may result in growing numbers of employers offshoring low-paid jobs in order to artificially improve the pay ratio for publication. For this reason, Mercer argues average pay rather than the median should be the measure used in ratio reporting as it is more transparent and less onerous to calculate.
The consultancy recently stated that CEO pay and employee pay should be compared to the National Living Wage – rather than with each other.
Gordon Clark, partner at Mercer Kepler, said:
‘Whilst we welcome many of the recommendations in the report, we feel that abolishing LTIs are too prescriptive . . . Long-term incentives remain an effective tool, linking executive pay and long-term company performance; this is vital to shareholders and executives. LTIs do need to be carefully designed with measures and time horizons which reward the “right” performance and behaviour that support company, and UK, financial health over the long-term.’