EXECUTIVE PAY
Cable urges greater transparency in executive pay and reporting
Investors will have greater clarity on how executive pay is matched to performance under proposals published today by the Business Secretary, Vince Cable. The proposals, issued as part of a consultation paper, will “simplify the reporting requirements for companies, providing clear and relevant information to investors on performance and pay”. They will also “increase transparency and accountability”.
Measures to improve reporting on remuneration include requiring companies to provide information on the link between the performance of companies and top executives earnings. For example, requiring disclosure where the remuneration committee has agreed to pay bonuses when performance targets have not been met.
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The consultation paper also asks:
whether to require the total figure for each board director’s remuneration to be published, including basic salary, bonuses, share schemes and pensions and how this should be calculated
whether the ratio between the CEO’s pay and median earnings in a company should be published
in line with proposals for large banks, whether to disclose the highest earners in a company below board level, for example those earning above a defined threshold of total pay, or a defined number of top earners who have significant influence over how a company is run or those who have the ability to take significant risk.
The consultation also sets out government plans to divide companies’ narrative reports into two documents so that it is easier for companies to prepare investors to identify the information they need.
Cable said:
“The average length of an annual report is now almost 100 pages and even longer for FTSE 100 companies. It has become unwieldy, complex and hard to understand, so investors cannot easily find the information they need. Changing the way companies do their annual reports will provide investors with better information on how well business are performing and what their directors are being paid, increase transparency and reduce the burden on business freeing them up to concentrate on growing and focusing on the long-term.”
Discussion paper
Also published today is a discussion paper on executive pay, focusing on “how to curb pay asymmetry - where escalating pay at the top does not correlate with company performance”. The discussion paper is a "result of conversations government has had with shareholders, investors and business leaders on pay and sets out their thoughts". These include:
whether there is a case for a binding vote for shareholders on deciding pay
diversifying the membership of remuneration committees to encourage greater challenge - for example, having employee representation
how to simplify and improve the structure of remuneration to incentivise and reward sustainable long-term performance
improved research and guidance on remuneration to help companies and shareholders make more informed decisions on pay.
A final word
Commenting on the discussion paper, the Business Secretary, Vince Cable, said:
“The government wants the UK to be a magnet for attracting and retaining the best talent, and we do not want to do anything to jeopardise this aim. Executive remuneration that is well structured, linked to the objectives of the company and rewards directors who contribute to the long-term success of the company is an important way of promoting sustainability and growth.
“However, there are concerns about the disconnect between how our largest listed companies perform and the rewards that are on offer. This is not sustainable. Concern over this is not just coming from government. Investors, business groups and captains of industry have all told us that this is real problem and needs to be addressed. We have put a wide range of options up for discussion so we can decide what is workable and end up in a place where remuneration is genuinely matched to performance and long term success.”
Executive Remuneration Discussion Paper
Open date: 19 September 2011
Closing date: 25 November 2011
Discussion paper seeking views on issues relating to executive remuneration.
This discussion paper looks at the issues surrounding executive remuneration. It builds on the evidence received in response to A Long-term Focus for Corporate Britain, the existing body of research and conversations with business, shareholders and other stakeholders. It puts forward wide-ranging proposals on how to link executive pay more closely to company performance and invites feedback and further evidence that will help build a stronger understanding of the issues.
This paper is published in conjunction with a consultation on narrative reporting (see below).
Respond to this consultation
Email: executivepaydiscussionpaper@bis.gsi.gov.uk
Post: Executive Pay Discussion Paper, Business Environment, Department for Business, Innovation and Skills, 1 Victoria Street, London SW1H 0ET
Download the consultation: www.bis.gov.uk/Consultations/executive-remuneration-discussion-paper.
The Future of Narrative Reporting: A further consultation
Open date: 19 September 2011
Closing date: 25 November 2011
Consultation paper seeking views on issues relating to corporate narrative reporting.
The consultation seeks views on government plans to make narrative reporting simpler, clearer and more focussed. It includes proposals to change company narrative reports to make the framework clearer for companies and easier for investors to locate the information they need. The government is also reviewing the disclosure requirements that it places on companies to streamline and remove inconsistencies. The consultation also includes a number of proposals to make the reporting of executive remuneration clearer and more relevant to investors.
Respond to this consultation
Email: Narrativereporting@bis.gsi.gov.uk
Post: Mark Jackson, Business Environment, Department for Business, Innovation and Skills, 1 Victoria Street, London SW1H 0ET.
Download the consultation: www.bis.gov.uk/Consultations/future-of-narrative-reporting-further-consultation.