Executive Pay

16th February 2012

Sitting on a panel of experts to discuss new research commissioned by The Share Centre into UK corporate governance practice, produced a significant amount of common ground among the participants around weaknesses and remedies. If you are lucky, research will tend to confirm your world picture, but it should also move your thinking.

No surprise therefore to find consensus in the findings that the UK ‘comply or explain' culture is widely supported, and that the Stewardship Code is seen as a helpful addition to soldering greater stewardship awareness into investment decision making (although some self-assessment scrutiny may be required to give it weight). There was also consensus that the industry – companies, fund managers and beneficial owners, should largely be left to sort problems out themselves; political intervention was widely viewed as, at best, well intentioned meddling.

More surprising perhaps was the muted and somewhat mixed response to the question ‘are non-executive directors effective and efficient in their role?, with the majority of survey respondents saying this could only be evaluated on a case by case basis, with a not dissimilar number saying they simply cannot tell. This suggests an obvious reality; shareholders cannot hope to understand and judge the inner workings of company boards, nor are they necessarily inclined to probe further.

There is currently much heated debate around reform and change when it comes to the UK corporate governance regime, but as I have said before, the UK continues to lead global thinking, providing more clarity and coherence than in many similar jurisdictions such as France or Germany.

In one area, pay, there is clearly room for improvement, and perhaps here, political intervention is sorely needed to kick-start reform.

Our own view is that tri-partite action is needed to simplify reporting, quantify the expected face value cash number attached to any package, and to justify the amounts awarded.

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