UK body ponders executive pay
Jan du Plessis, chairman of British-Australian mining group Rio Tinto, said workforce representation on remuneration committees would be unhelpful as it would artificially separate discussions on remuneration from those on corporate strategy.
Jan du Plessis, chairman of British-Australian mining group Rio Tinto, reckons workforce representation on remuneration committees would be unhelpful as it would artificially separate discussions on remuneration from those on corporate strategy.
Du Plessis, a South African, does acknowledge the importance of public perception in determining attitudes to executive remuneration.
Du Plessis was one the many witnesses providing evidence to a UK parliamentary committee inquiry on corporate governance.
The committee, whose research was focused on executive pay, directors’ duties and the composition of boardrooms, did not see worker representation as a disadvantage.
It believes worker representation would ensure greater involvement of workers with company strategy.
“We believe that consultation with workers throughout the organisation is a vital element of improving trust and gaining support for proposals,” the committee noted in its recently released report.
The committee’s widereaching recommendations include not only that workers be represented on boards but that long-term incentive plans should be phased out as soon as possible and that the chairperson of the remuneration committee should resign if the remuneration proposals do not receive the backing of at least 75% of voting shareholders.
The inquiry was launched in the wake of commitments from Prime Minister Theresa May to overhaul corporate governance in the UK. While the committee said worker representation should not be mandatory as it might not work for all companies, it believes the option should be included in the UK Corporate Governance Code and leading companies should be expected to adopt it.
The vast majority of respondents to the inquiry backed reform on executive pay. Many argued that executive pay was simply too high and could not be justified in terms of both the link to levels of performance and the growing gap with the pay of other employees.
The inquiry did hear an alternative view. Fund managers and remuneration consultants argued that the current arrangements were working “broadly satisfactorily”. Some warned against any action that would harm the ability of leading companies to attract scarce talent in a highly competitive global market.
The release of the UK parliamentary report coincided with the launch of the Institute of Directors in Southern Africa’s position paper on fair and reasonable remuneration. There are no substantial recommendations in the institute paper, with board members merely urged to be aware that the work of remuneration committees is critical to a company’s social licence to operate.
The institute’s paper also acknowledges the role of perception and says no matter how compliant, diligent or robust the organisation’s remuneration system may be, the pay outcomes must be seen to be fair.
The institute does warn against an overreliance on remuneration benchmarks, which have a ratcheting effect on remuneration levels.
“The peer group for market comparison purposes should be chosen with care, ensuring that similarly sized organisations operating in similar jurisdictions are taken into account. Benchmarks should be used only as a guide to competitive pay levels.”
Unlike the UK parliamentary inquiry, which is obliged to look to a broad section of interested parties, the institute is required to focus on the interests of its members.