The government has published a consultation on executive reward that proposes to simplify the reporting requirements for organisations so investors are given clear information on performance and pay.
The consultation, The Future of Narrative Reporting, said that such measures would increase the transparency and accountability in the investment chain and enable shareholders to get a real picture of what is happening to inform their investment decisions and help the economy grow.
It also asks whether:
- The total figure for each board director’s remuneration should be published, including basic salary, bonuses, share schemes and pensions, and how this should be calculated†
- The ratio between the chief executive officer’s pay and median earnings in an organisation should be published
- Organisations should disclose its highest earners below board level.
Vince Cable, business secretary, said: “The average length of an annual report is now almost 100 pages and even longer for FTSE 100 organisations.
“It has become unwieldy, complex and hard to understand, so investors cannot easily find the information they need.
“Changing the way organisations do their annual reports will provide investors with better information on how well businesses 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.”
Sean O’Hare, reward partner at PricewaterhouseCoopers, said: “As such the proposals, if implemented, could place a huge administrative and cost burden on businesses with limited benefit.†
“The worst outcome would be increased time spent by management and remuneration committees navigating a new set of governance rules at the expense of spending quality time considering pay decisions.
“What is needed is more focus on simplicity. Performance-related pay has grown too complex and forms too great a proportion of the package, resulting in unintended consequences, volatile pay-outs, and frustration for shareholders, remuneration committees, and executives alike.
“As a highly open economy, the UK will always be subject to international market forces on pay but complexity has made matters worse. Simpler schemes, such as where executives are paid a competitive total package, but required to hold a significant proportion in shares for a long period, are more likely to enhance the long-term link between pay and performance.”
Meanwhile, a discussion paper on executive remuneration also published today looks at how to curb pay asymmetry, where escalating pay at the top does not correlate with an organisation’s performance.
It will look at:
- Whether there is a case for a binding vote for shareholders on deciding pay
- Diversifying the membership of remuneration committees to encourage greater challenge, such as having employee representation
- How to simplify and improve the structure of remuneration to incentivise and reward sustainable long-term performance
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