Executive Remuneration: Government report published
Published 13 May 2019
A Business, Energy and Industrial (BEIS) parliamentary committee has published a strongly worded report on executive pay.
BEIS has published a report, “Executive rewards: paying for success”, examining progress on the government’s attempts to address the gap between the pay of chief executives on the one hand and company performance and employee pay on the other. The report states that there continue to be regular examples of excessive payments which are reputationally damaging and serve to fuel a perception of institutional unfairness that (according to the report) if not addressed is liable to foment hostility and undermine social cohesion and support for the current economic model.
The report comments on the fact that chief executives’ earnings in the FTSE 100 have increased four times as much as national average earnings and that FTSE chief executives earn around £4million per annum while average pay is under £30,000. The report is critical of remuneration committees and concludes that the structure of executive pay has become too dominated by incentive-based elements that do not effectively drive decision making in the long-term interests of the company.
The report recommends that:
- Companies should appoint at least one employee representative to the remuneration committee.
- Reporting requirements on pay ratios should be expanded to include all employers with over 250 employees and that data on the lowest pay band should also be disclosed.
- Executive pay should be simplified, more definitively promote companies’ long-term objectives, and link more closely to that of the workforce as a whole.
- Remuneration committees should set, publish and explain an absolute cap on total remuneration for executives in any year.
- There is a much greater involvement of the new regulator that will replace the “passive” Financial Reporting Council.
- Actions be taken by the new regulator, including the development of guidelines on bonuses to ensure that they only reward for exceptional performance.
- There is greater involvement of asset managers and proxy advisors.
What does this mean for employers?
BEIS has been influential in changes to executive pay in the past so employers may see some changes flowing from this report. The proposed appointment of employee representatives to remuneration committees and the proposed increase on pay reporting requirements to all employers with over 250 employees are likely to be of particular interest.
Executive rewards: paying for success