An emphatic 85% of institutional investors say the pay of finance directors and other board executives is insufficiently performance-related, according to new research.
A survey found 80% of respondents believe incentive arrangements are too short-term while investors have doubts about the independence of remuneration committee chairman.
Around 60% of investors said they suspect most non-executive directors are not independent minded enough to prevent chief executives from influencing their own pay.
However, investors voiced reservations about giving shareholders more power to govern pay levels while expressing sympathy with the DTI’s bid to increase disclosure.
‘Unless the worst offending companies more enthusiastically address the linkages of pay to performance, there is a clear danger that shareholders will vote with their feet, exerting downward pressure on the share price,’ warned Damien Knight, director of executive remuneration at Hay Management Consultants, the company that carried out the survey.
FDs have shown mixed feelings towards the news. David Green, FD at Northampton-based Target Furniture, said: ‘There are not sufficient controls in place. I would have thought some sort of shareholder remuneration committee overriding the existing remuneration committee should be set up.’
Meanwhile Kevin Tomlinson, FD at manufacturing firm, Signam, countered the findings: ‘Shareholders have sufficient strength to halt excessive remuneration. If directors produce results that are beneficial to companies then executives should be remunerated.’
Investors’ protests have escalated following recent eight figure payouts given to directors like Vodafone’s Chris Gent and The Carphone Warehouse co-founder and chartered accountant David Ross.
The DTI intention to make disclosure of executive remuneration levels more transparent by giving new powers to shareholders has further polarised the debate.
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