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Executive Remuneration Working Group issues ten recommendations to rebuild trust in pay

Investment Association

3 min read Partner content

The Executive Remuneration Working Group has today issued a Final Report proposing ten recommendations to rebuild trust in executive pay structures in the UK, following consultation with over 360 investors, asset owners and company employees.


The Report represents a far-reaching plan to simplify pay structures for company bosses while improving the alignment of their interests with those of the shareholders who own their businesses.

Developed by five leading representatives of listed companies, investment management and asset owners, the report calls for companies to be given the flexibility to select the right pay structure that works for them and their shareholders, rather than focusing solely on the currently dominant 'one-size-fits-all' Long-Term Incentive Plan (LTIP) pay structure.

The Report includes:

  • A call for Boards to explain why they have chosen their company's maximum pay level, with consideration of relativities such as the pay ratios between CEOs and different employees.

  • A call for transparency around the target-setting employed in bonuses, including retrospective disclosure of performance ranges and provision of explanations where discretion has been used.

  • A proposal that whole boards be required to engage in the remuneration-setting process, and for non-executive directors to have at least a year's experience on a remuneration committee before being appointed as its Chair, plus clear disclosure of the rationale to be provided when discretion is used in awarding pay.

It also acknowledges the recent contribution to the debate by UK Prime Minister Theresa May on binding pay votes, and suggests an option to inform the debate could be to have binding votes on companies that have failed to receive support from 75% of shareholders on their previous year's remuneration report.

To move away from the current LTIP model, the report aims to rebuild trust by strengthening remuneration committees and their accountability, boosting shareholder engagement, making target-setting more transparent and giving companies discretion to explore how differing pay structures may gain market trust.

Chair of the Executive Remuneration Working Group, Nigel Wilson, said:

"I believe the 10 recommendations outlined in today's report on executive remuneration will help to simplify, provide greater transparency, and deliver better shareholder, company and executive alignment on pay.

"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 £5.5trn asset management industry and served as the secretariat to the group, today said it would review its Principles of Remuneration to consider the recommendations.

Andrew Ninian, Director of Corporate Governance & Engagement at the Investment Association, said:

"The recent intervention from our new Prime Minister shows that investors and companies need to work together and address the concerns with executive pay, our industry is clear that it expects UK listed companies to work with us to tackle the lack of trust that has resulted from the UK's complex and ineffectual pay regimes.
 
"We will now look to amend our Principles of Remuneration so the asset managers who look after the financial interests of millions of savers and investors can play their part in delivering the change that is sorely needed."

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