Companies flying blind over execs and workforce pay link

Mary Carter, partner at KPMG

Head-scratching: Mary Carter

Moves to make pay hikes in the boardrooms of the UK’s largest companies take
rank and file salary conditions into account have been called into question
again as the deadline for the rule change draws closer.

The demands are part of requirements for the Companies Act, which comes into
force next year. However, corporate governance experts at KPMG said that
remuneration committees would be flying blind on the issue.

‘It’s going to cause a certain amount of head scratching,’ said Mary Carter,
KPMG partner in the firm’s executive compensation division. ‘I was quite
surprised it went into the regulations. It will be an interesting period.’

Executive remuneration is one of the most heavily-scrutinised sections of the
annual report, but companies being forced to make a link between workforce pay
scales and those in the boardroom has caused concern.

Commentators have said that there are so many different app-roaches that it
would be almost impossible to regulate.

‘Companies would have to produce huge tables, which would have to be put into
a company report, and probably have no relevance to the people reading it,’ said
Patricia Peter, the Institute of Directors head of corporate governance, when
the idea was first suggested by the DTI last year.

‘Also, there’s very little actual connection between someone working on a
checkout and the pay of a chief executive.’

The lack of clarity relating to executive pay formulas, especially at the top
end of the capital markets, has been red flagged by PricewaterhouseCoopers,
CIMA, and corporate reporting consultants Radley Yeldar.

The arrangements, which include highly intricate share, pension and incentive
schemes, were high on the conference agenda.

‘There’s lots more “fudge” around bonuses in the in the bigger FTSE
companies,’ said Carter. ‘The incentives in AIM and small cap companies are much
more rigorously aligned to performance.’

FDs at underperforming companies have been panned for their bonuses, but
Carter believes they would still be in a strong position in the long term
despite the changes.

‘I don’t think that we’re going to cry too much just yet that directors of
big-listed companies are going to starve.’

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