Employer bodies have urged the Government not to legislate to curb fat cat
pay following the publication of a consultation document on the issue last
Trade and industry secretary Patricia Hewitt revealed a number of proposals
for tying directors’ pay more closely to performance, through best practice
guidance and various possible changes to company law.
Potential changes to company law include requiring boards to take into
account under-performance when determining severance payments and reducing the
statutory period of a director’s appointment to just one year (or three years
on first appointment).
Best practice suggestions put forward by Hewitt include reducing notice
periods to less than one year, agreeing a capped level of severance at the
beginning of an executive’s appointment, and paying all or some of severance
compensation in instalments rather than in one lump sum.
The Chartered Institute of Personnel and Development (CIPD) and the
Confederation of British Industry (CBI) believe the best practice approach is
the right one.
Charles Cotton, CIPD adviser on pay and reward, said: "Organisations
should be free to pay the best salaries to attract, keep and motivate the best
people. However, for this approach to work, employers need to have rational,
justifiable and well-communicated reward polices in place."
The CBI is due to publish its own suggestions for addressing concerns over
boardroom pay shortly.