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You can find the current article at its original source at https://www.theguardian.com/business/2016/jul/26/executive-pay-city-report-stops-short-of-backing-binding-shareholder-votes
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| Executive pay: City report stops short of backing binding shareholder votes | Executive pay: City report stops short of backing binding shareholder votes |
| (30 days later) | |
| A report by City grandees has set out a number of measures to help restore public confidence in executive pay, but stopped short of endorsing Theresa May’s proposal for binding shareholder votes on senior management salaries. | A report by City grandees has set out a number of measures to help restore public confidence in executive pay, but stopped short of endorsing Theresa May’s proposal for binding shareholder votes on senior management salaries. |
| The report, which acknowledges executive pay is difficult to justify, did not set out how much directors should receive, either in absolute terms or compared with their wider workforce. | The report, which acknowledges executive pay is difficult to justify, did not set out how much directors should receive, either in absolute terms or compared with their wider workforce. |
| It set out 10 recommendations, including the use of pay ratios, but refused to back the binding shareholder votes on executive pay suggested by the new prime minister. | It set out 10 recommendations, including the use of pay ratios, but refused to back the binding shareholder votes on executive pay suggested by the new prime minister. |
| Drawn up by a committee that met under the auspices of the lobby group the Investment Association, the report also called for more flexibility in the way executive bonuses are structured away from the traditional long-term incentive plans (Ltips), which pay out over three or five years in shares. | Drawn up by a committee that met under the auspices of the lobby group the Investment Association, the report also called for more flexibility in the way executive bonuses are structured away from the traditional long-term incentive plans (Ltips), which pay out over three or five years in shares. |
| “Growing complexity has contributed to poor alignment between executives, shareholders and the company, sometimes leading to levels of remuneration which are difficult to justify,” the report said. | “Growing complexity has contributed to poor alignment between executives, shareholders and the company, sometimes leading to levels of remuneration which are difficult to justify,” the report said. |
| The chief executive of the insurer Legal & General, Nigel Wilson, who chaired the committee behind the report, said: “We need to restore public confidence in executive pay.” | The chief executive of the insurer Legal & General, Nigel Wilson, who chaired the committee behind the report, said: “We need to restore public confidence in executive pay.” |
| He added: “We have not commented specifically on the quantum of executive pay.” Boardroom pay had trebled since 1998 during a period when the FTSE 100 had remained flat, said Wilson, and “in the next 20 years we’d like a much better outcome”. | He added: “We have not commented specifically on the quantum of executive pay.” Boardroom pay had trebled since 1998 during a period when the FTSE 100 had remained flat, said Wilson, and “in the next 20 years we’d like a much better outcome”. |
| The panel also included the chairman of Sainsbury’s, David Tyler, and Edmund Truell, chairman of the strategic advisory board of Lancashire and London Pensions Partnership. | The panel also included the chairman of Sainsbury’s, David Tyler, and Edmund Truell, chairman of the strategic advisory board of Lancashire and London Pensions Partnership. |
| Truell, when asked what “alignment” between shareholders and executives meant, said: “For me this whole thing is about simplicity. I want my management teams to be incredibly wealthy because as a shareholder I’ve made a lot of money.” | Truell, when asked what “alignment” between shareholders and executives meant, said: “For me this whole thing is about simplicity. I want my management teams to be incredibly wealthy because as a shareholder I’ve made a lot of money.” |
| Complicated bonus schemes meant executives did not know how they were being paid and set up secret spreadsheets to work out what their bonuses could be, said Truell. He advocated the use of restricted shares, which pay out at a predetermined point in the future. | Complicated bonus schemes meant executives did not know how they were being paid and set up secret spreadsheets to work out what their bonuses could be, said Truell. He advocated the use of restricted shares, which pay out at a predetermined point in the future. |
| Work on the report started last year and coincided with the appointment of May, who became prime minister in the wake of the vote to leave the European Union, and put the issue of executive pay back on the political agenda. During her leadership bid, she spoke of new votes for shareholders on executive pay and putting workers on boards. | Work on the report started last year and coincided with the appointment of May, who became prime minister in the wake of the vote to leave the European Union, and put the issue of executive pay back on the political agenda. During her leadership bid, she spoke of new votes for shareholders on executive pay and putting workers on boards. |
| But the working group expressed caution about a binding vote on pay deals and suggested an “option to inform the debate” could be by having such a vote on companies that failed to receive 75% approval the previous year. | But the working group expressed caution about a binding vote on pay deals and suggested an “option to inform the debate” could be by having such a vote on companies that failed to receive 75% approval the previous year. |
| An interim report in April – published just as the annual general meeting season was getting under way and as shareholders handed rebukes to boardrooms over pay at major companies such as BP – set out the views that more flexible pay deals were needed. | An interim report in April – published just as the annual general meeting season was getting under way and as shareholders handed rebukes to boardrooms over pay at major companies such as BP – set out the views that more flexible pay deals were needed. |
| Tyler, who said it would be difficult to set out three-year pay deals amid the uncertainty created by the Brexit vote, said less use of Ltips would slow the drain of executive talent to private equity and family-run businesses. But, he said, it would not lead to higher pay but to lower average pay because executives did not know how to put a value on their complex long-term schemes. | Tyler, who said it would be difficult to set out three-year pay deals amid the uncertainty created by the Brexit vote, said less use of Ltips would slow the drain of executive talent to private equity and family-run businesses. But, he said, it would not lead to higher pay but to lower average pay because executives did not know how to put a value on their complex long-term schemes. |
| Tyler said firms were competing internationally for the best management and, at the same time, investors such as pension funds were the beneficiaries of good company performance. “Sometimes, if I may say, the media makes it out to be more simple than it really is,” he said, claiming that a big pay packet is reported one year but a fall in pay the following year is ignored. | Tyler said firms were competing internationally for the best management and, at the same time, investors such as pension funds were the beneficiaries of good company performance. “Sometimes, if I may say, the media makes it out to be more simple than it really is,” he said, claiming that a big pay packet is reported one year but a fall in pay the following year is ignored. |
| At a launch event, the panel faced questions about whether more flexibility would lead to more fees for the pay consultants hired to design schemes, and how the foreign shareholders who held stakes in UK-listed companies would react to change. | At a launch event, the panel faced questions about whether more flexibility would lead to more fees for the pay consultants hired to design schemes, and how the foreign shareholders who held stakes in UK-listed companies would react to change. |
| Stefan Stern, director of the High Pay Centre, told the Guardian: “If they are going to be squeamish about [defining] quantum then the disconnect and screaming headlines will keep coming.” | Stefan Stern, director of the High Pay Centre, told the Guardian: “If they are going to be squeamish about [defining] quantum then the disconnect and screaming headlines will keep coming.” |
| A government spokesperson said the report would contribute to the debate. “The prime minister has said she wants to see stronger shareholder oversight of executive pay and greater transparency including better reporting of bonus targets and pay ratios. She has also called for a simplification of the way bonuses are paid so that incentives are better aligned with the long-term interests of the company and its shareholders,” the spokesperson said. | A government spokesperson said the report would contribute to the debate. “The prime minister has said she wants to see stronger shareholder oversight of executive pay and greater transparency including better reporting of bonus targets and pay ratios. She has also called for a simplification of the way bonuses are paid so that incentives are better aligned with the long-term interests of the company and its shareholders,” the spokesperson said. |