The world of pay is not short of suggestions on how executive remuneration could become more aligned with shareholder and social demands.

The latest contribution comes in the form of the High Pay Commission report on pay. It makes 12 recommendations. Despite its official-sounding name, the High Pay Commission is in fact an informal group of those interested in social policy which was brought together just for the purposes of this report although one of its recommendations is that something similar should be put in place on a more formal basis. Its report is a thoughtful paper but it shares with other research a lack of confidence that the right or proportionate levers for control have yet been found or indeed can be found at all.

The recommendations are as follows:

  • The key proposal is a revolutionary one that senior executives are paid a basic salary, with additional amounts for exceptional performance only. Details are sketchy but it appears that the performance period would be measured over the three previous years and then the result would be delivered in shares over the next 5 years, 20% per year.  Quite how this would meet the pay demands of executives is left undiscussed. However, it clearly has the merit of simplicity and would certainly act as a brake on the growing complexity of remuneration schemes and targets.
  • Publish the top ten executive packages outside the boardroom - this would be done anonymously, but as recipients of share awards are currently named as and when awards are made, it would not take much to identify individuals. 
  • Standardise remuneration reports so that comparison is easier and investors are able to work out relative pay.
  • Require fund managers and investors to disclose how they vote (and not just on remuneration).
  • Include employee representatives on remuneration committees - again, it is thought that this will act as a brake on pay.
  • Quoted companies should provide a distribution statement showing how much is spent on executive remuneration compared with total staff costs over a three year period, relative to tax paid and company dividends.
  • Shareholder votes on remuneration should consider forthcoming pay over the following three years to give a longer perspective. However, importantly the High Pay Commission comes out against making these votes binding, which is currently one of the BIS consultation ideas.
  • Improve investment in the talent pipeline. A number of commentators have suggested that poor succession planning has led to the need for expensive buying-in of talent.
  • Advertise non-exec positions to improve the pool from which non-execs are recruited to give a wider perspective on remuneration.
  • Reduce conflicts of interest for consultants to prevent them cross-selling services.
  • Produce a fair pay report which shows the pay gap across the group.
  • Establish a permanent body to monitor higher pay, which would report annually and police pay codes.

Some of these suggestions are already included as possibilities in the BIS discussion documents (where the 25 November deadline for responses on the BIS remuneration questions draws closer -  click here to read our previous Law-Now), although the High Pay Commission ideas are actual proposals rather than discussion suggestions. No immediate change is likely given that the BIS proposals would not come into force at the earliest until annual reports are published in 2014, but what is interesting is that ideas which would previously have been dismissed as bizarre are now being included in mainstream debate. 

Click here to read the High Pay Commission's report. 

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 22/11/2011.