Institute of Directors Calls for Action on Executive Pay

Small Business News

25^th November 2011

The Institute of Directors has submitted its response to the Department for Business’s consultation on executive remuneration, which closes today. Commenting on the IoD’s submission, Simon Walker, Director General of the IoD, said:

“The IoD has noted, with growing concern, the rapid rise in executive remuneration at the largest listed UK companies over the last 10-15 years. We are aware of the difficult challenges faced by remuneration committees in responding to a global market for executive talent. But the current pace of increase in executive pay is unsustainable. The legitimacy of UK business in the eyes of wider society is significantly damaged by pay packages that are not clearly linked to company performance.”

Key proposals made by the IoD in its response include the following:

• More diversity amongst independent non-executive directors. Boards with members from diverse professional backgrounds are more likely to exhibit “objective scepticism” in respect of remuneration policy than current or former CEOs.

• Introduction of a binding shareholder vote on executive remuneration policy.

• Engagement of remuneration committees, on a voluntary basis, with employee representatives as part of the remuneration setting process.

• Greater transparency regarding the potential conflicts of interest experienced by remuneration consultants.

• A substantial simplification of executive remuneration packages.

Commenting on these proposals, Simon Walker added:

“A higher level of professional diversity amongst independent non-executive directors will assist boards in aligning executive pay with society’s expectations. Shareholders should also play a more active oversight role.”

“Remuneration committees should explore ways of engaging with employees on remuneration policy. This will be important in increasing the legitimacy of executive remuneration in the eyes of wider society.”