Directors' pay proposals questioned
Increased disclosure is not the panacea for spiralling executive pay. In fact, it could have the opposite effect, warn human resources consultants William M Mercer.
Under new government proposals directors’ pay will be put to an annual shareholder vote.
Responding to the government’s consultation, Simon Patterson, worldwide partner at Mercer, said: ‘Evidence suggests that disclosure can actually ratchet up executive pay deals. The peer comparisons recommended in the Greenbury code have undoubtedly been of most interest to the executives themselves, no doubt fuelling aspirations at the top.’
Patterson added: ‘In practice, such votes will come too late when terms of executive pay and benefits are already written into employment contracts, protected by law.’
Mercer recommends instead that changes to remuneration terms in employment contracts before executives are taken on would be more effective.