Shareholders and senior executives, including Legal & General’s Nigel Wilson, have called on companies to scrap the current system for paying top bosses as part of a radical overhaul of the investment industry.
The high-profile Executive Remuneration Working Group, created by the Investment Assocation, published its final report on 26 July, which proposes 10 recommendations to simplify executive pay structures in the UK.
The report, which follows a consultation of more than 360 investors, asset owners and company employees, outlined a number of recommendations for all management boards.
A switch-up of corporate pay packets has been in the spotlight since prime minister Theresa May launched a campaign which demanded shareholder votes on corporate pay are binding, as opposed to advisory.
Acknowledging the prime minister’s campaign on binding pay votes, the report suggested there should be an option to have binding votes on companies that have failed to receive support from 75 per cent of shareholders on their previous year’s remuneration report.
It called on all boards to explain why they have chosen to grant an executive the maximum pay level, and to disclose the pay gap between top bosses and other employees.
The report also said companies should move away from the current long-term incentive plan, which abides by a ‘one-size-fits-all’ model, and stated companies should be given the flexibility to choose a pay structure which works for them and their shareholders instead.
It also called for companies to be transparent over how targets are set for bonuses.
UK listed companies need to tackle the lack of trust which has resulted from complex and ineffectual pay regimes. Andrew NinianL&G chief executive Mr Wilson, chair of the Executive Remuneration Working group, said: “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 said it would review its ‘principles of remuneration’ in light of the recommendations.
Andrew Ninian, director of corporate governance and engagement at the IA, said 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.”
katherine.denham@ft.com
