The Business, Energy and Industrial Strategy Select Committee (a Parliamentary committee tasked with scrutinising the work of the corresponding government department) has published its recommendations on executive remuneration at publicly-traded companies.
The report examines progress on the Government’s attempts to “address the gap … between executive remuneration on the one hand and company performance and employee pay on the other”.
It 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 companies”.
The Committee’s key recommendations include the following:
- Giving the proposed new corporate governance regulator – the Audit, Reporting and Governance Authority (ARGA) – greater responsibility for issuing guidance on executive remuneration and monitoring companies’ remuneration reports and enforcing compliance.
- Requiring companies to appoint at least one employee representative to their remuneration committee.
- Expanding the CEO pay-ratio reporting requirement from merely quoted companies to all organisations with more than 250 employees (bringing it in line with the current threshold for gender pay-gap reporting).
- Requiring companies to publish a CEO pay ratio against the “lowest pay band” and the “bottom quartile”.
- Requiring a company’s remuneration report to explain the impact of any share buy-backs by the company on executive remuneration.
- Encouraging remuneration committees to set an “absolute cap” on executive remuneration.
- Developing new guidelines on annual bonuses to ensure they are genuinely stretching and only reward exceptional performance.
- Requiring public explanations from companies that fail to deliver alignment between executive and general workforce pension policies.