The Executive Remuneration Working Group has today issued an Interim Report as part of its drive to simplify and improve pay practices at UK listed companies.
The Working Group, which includes representatives of companies, investors and asset owners, has made a series of proposals ahead of a consultation, to take place in the coming weeks.
The proposals are centred on resetting the expectations both of listed companies and investment managers around pay structures, to overhaul the current dominance of Long-Term Investment Plans (LTIPs), which often result in a poor alignment of interests between executives and shareholders.
The Working Group argues we should move away from the current ‘one-size-fits-all model’, and that a range of other options should be considered by companies when deciding on executive pay structures, based on their own business strategies and circumstances. These options might include a simple restricted shares awards scheme.
Pay-setting should be carried out within a clear and simple structure that calls for alignment with shareholders’ interests, recognition of company performance, the implementation of a long-term strategy and which is consistent with the approach for other employees.
The Interim Report will now form the basis of a series of roundtable discussions with stakeholders across the investment chain.
The Investment Association, which helped to establish the independent Working Group and provides the secretariat, has informed the working group it will review promptly whether to adopt its eventual final recommendations in its Principles of Remuneration.
Nigel Wilson, Chairman of the Executive Remuneration Working Group, said:
“The current approach to executive pay in UK listed companies is not fit for purpose, and has resulted in a poor of alignment of interests between executives, shareholders and the company.
“Greater transparency, clearer alignment of shareholder, company and executive interests, more accountability on the part of Remuneration Committees and greater engagement with and control by shareholders, working through company boards, are vital to restore confidence in a system widely seen as broken.”
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Notes to editors:
The Executive Remuneration Working Group is an independent panel of experts set up last year to review pay structures at UK listed companies. The Investment Association provides secretariat services to the Working Group.
The panellists are:
About the Investment Association: