FRC identifies practical problems of single pay figure

IN THE MOST tangible piece of work produced since its launch in October last year, the FRC’s Financial Reporting Lab today released a project document on simplifying remuneration reports.

Earlier this week, business secretary Vince Cable announced a raft of reforms that will hand greater to powers to shareholders in dictating executives’ pay packages and boost transparency.

Under the proposals outlined by the Department for Business, Innovation and Skills (BIS), companies will have to report a single figure for the total pay directors received for the year, covering all rewards received by directors, including bonuses and long-term incentives.

At the request of BIS, the Financial Reporting Lab undertook a short-term project to obtain the views from the investment community on how a single figure might be measured and presented.

The proposals describe the components of remuneration that investors believe should be contained within total remuneration, as well as how they should be measured.

The report found investors feel a single figure of remuneration should include all types of reward and be consistently prepared, both with regard to what components are included and how each is measured.

While investors understand the government’s reason for proposing the communication of a single figure of total remuneration, they identified a number of practical problems in formulating the figure.

According to the report, they see a clear need for coordinating the reporting requirements for remuneration between BIS and other regulators, such as the FSA and the Treasury, so as to avoid conflicting or duplicative requirements.

In addition, they believe that a significant amount of the current requirements could be removed if the conclusions reached during this project are adopted within any new disclosure requirements brought in by BIS. An outcome whereby the requirement to provide a single figure of total remuneration simply results in the inclusion of an additional table within an already lengthy remuneration report is not one either companies or investors support.

FRC executive director of codes and standards Melanie McLaren said: “We believe that one important additional benefit of the proposals should be the simplification of remuneration disclosure, which many now consider to be overly complex. It was to address precisely this sort of issue that we created the Lab.”

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