The Chartered Institute of Personnel and Development (CIPD) has welcomed new
best-practice guidelines to tackle fat cat ‘rewards for failure’.
Recommendations produced by the Confederation of British Industry (CBI) are
intended to provide a flexible and transparent framework for directors’ severance
packages, and include six key principles that could be used by companies as a
benchmark for all executive-director contracts.
The CBI also hopes that self-regulation will allay Government legislation,
which it believes would be intensely damaging to UK competitiveness. The
Government’s consultation on how to avoid rewards for failure will be completed
at the end of September.
Under the CBI’s provisions, key contractual guidelines would be announced to
shareholders immediately after the parties are committed to each other, to get
information into the public domain as quickly as possible.
Duncan Brown, assistant director general of the CIPD, was optimistic that
the guidelines could help prevent debates about rewards for failure by ensuring
termination arrangements are agreed as part of contracts of employment.
"Complaining about payments when termination takes place is like
looking down the wrong end of the telescope – you should get right in the first
place," he said.
The CBI guidelines state that a proportion of directors’ payment should be
directed into shares to align the interests of the executive director with
those of the shareholders, and get ‘everyone pointing in the same direction’.
They also state that unless there are special circumstances, severance
payments should not be made in a lump sum, but in monthly instalments, which
would stop when the director finds another job.
CBI director general Digby Jones said this would stop them "getting a
big cheque on Monday and a new job on Tuesday".
"I hope the guidelines will go a long way towards rebuilding
shareholder and public confidence – business’ reputation needs nurturing and
polishing," he said.
By michael millar