The Investment Association urged greater flexibility on executive pay in a report released today.
The proposals, labelled as a “far-reaching” plan to “rebuild trust”, were released this afternoon. They centred on giving companies greater powers to elect a remuneration strategy that reflects their individual needs.
Nigel Wilson, chairman of the five person working party, 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.”
Key proposals by the group included calls for boards to explain to shareholders why they have chosen the maximum levels of executive pay and additional disclosure on how executive pay compares to the average workforce. Also included were proposals for further transparency around how bonuses have been set and that the whole board should be fully engaged in the remuneration setting process.
“The core recommendation is to move towards a more flexible remuneration structure, recognising that the current regime is widely regarded as ‘not fit for purpose’,” said Suzannah Crookes of law firm Pinsent Masons.
However the recommendations could lead to further problems: “A flexible approach will bring its own challenges – companies, executives and investors now need to assess all potential alternatives, with the need for education on all sides to understand fully the implications of different structures,” Crookes said.
The proposals fell short of demanding an annual binding shareholder vote on executive pay as had as had been proposed by Theresa May during bid for the leadership of the Conservative Party.
“[The working party] 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,” said the report.