The High Pay Centre, well known in the UK for its opposition to the trend for higher executive pay, published its latest report on Wednesday. The catchy title “No Routine Riches” reflects the inevitable conclusions that the current approach to executive pay is misconceived. The main headline-catching recommendation is that companies should drop their LTIPs on the basis that reforming LTIPs has not worked, so that the only way forward is to ditch them. The Centre advocates its approach “as one that could be realistically implemented in the short to medium term”, which is perhaps less than realistic on its part!
The other main recommendations are:
- Pay in cash only, not shares;
- Use a broader range of company-specific targets, with an emphasis on productivity;
- Broaden the diversity of remuneration committees;
- No “golden hello” payments for unadvertised positions.
It is easy to think of the High Pay Centre as outside of the corporate governance mainstream, given some of the radical reforms that it advocates. However, the report is worth a read if you have the time.
Interestingly, Simon Walker, the Director-General of the Institute of Directors, used the High Pay Centre event this week to reopen the debate on employee representation on remuneration committees and boards. This subject was briefly brought into the limelight by the manifesto policies of Labour, the Liberal Democrats and the SNP before the General Election, which all advocated direct employee representation in one form or another. However, the issue has been shelved (for the moment at least) by the Conservative election victory. Mr Walker used this breathing space to propose a compromise, suggesting that companies might, on a voluntary basis, invite an employee representative as an observer at board and remuneration committee meetings.
It is difficult to see FTSE100 companies rushing to put this into practice. However, the suggestion certainly avoids many of the practical and theoretical issues that would have to be addressed before having employee representatives as full members of company boards and/or committees (some of which would bring into question the whole “unitary board” corporate governance model currently used in the UK). Mr Walker’s approach may warrant closer consideration before we get to the next General Election – currently scheduled for May 2020.