The CIPD has questioned the effectiveness of new regulations giving
shareholders the power to vote on company directors’ salaries which were put
before parliament last week.
The regulations, to be introduced before the end of the year, are designed
to bring greater transparency to the process of deciding boardroom pay and to
improve the link between remuneration and performance.
But the CIPD and other groups, including the National Association of Pension
Funds and the Association of British Insurers, want the issue to be addressed
through corporate governance codes rather than legislation.
CIPD assistant director general Duncan Brown said that while he supports
greater openness and clarity over directors’ pay, legislation is not the best
way to police excess rises because of the wide variety of cases that need to be
dealt with.
"Some form of code would be a better way because legislation is so
inflexible," he said.
Under the changes to be made to the Companies Act 1985, quoted companies
will have to publish a detailed breakdown of directors’ pay as part of their
annual reports. Companies will then have to hold a shareholder vote on the
report at each annual general meeting.
Trade and industry secretary Patricia Hewitt said the changes would keep pay
rises in check.
"Top-class pay for the best performers is something we support. But
there can be little doubt that some company directors have received lavish pay
awards in circumstances in which they were not deserved," she said.
"We share the view of many shareholders and employees that this is
unacceptable and has to change, and it’s important that shareholders should be
able to express their views about remuneration packages."
The regulations, designed to ease public concern over ‘fat cat’ salaries,
are due to become law before the end of the current parliamentary session and
will apply to quoted companies with financial years ending on or after 31
December, 2002.
By Quentin Reade
Wage accountability: the key changes
-Companies must publish a report on directors’ pay as part of
their annual reporting cycle
-Companies must hold a shareholder vote on the report at each
Annual General Meeting
These reports must include:
– Details of individual directors’ pay packages and
justification for any compensation packages
– Details of the board’s consideration of directors’ pay
-Membership of the remuneration committee
-Details of any remuneration consultants used
-A forward-looking statement of the company policy on
directors’ pay, including details on incentive and share option schemes, an
explanation of how packages relate to performance, and details and explanation
of policy on contract and notice periods
-A performance graph providing information on the company’s
performance in comparison with an appropriate share market index
Executive pay rises hit 10-year low point
Pay rises for directors are at their
lowest level for 10 years, according to the 2002 National Management Salary
Survey.
The report, by the Chartered Management Institute and
Remuneration Economics, finds that the average increase in directors’ salaries
in the year to January 2002 was 5.9 per cent, compared to 12.9 per cent in 2001.
The survey shows that the main constraint on directors’ pay
growth has been a drop in the number of awarded bonuses and the value of the
bonuses where given.
Chief executive of the Chartered Management Institute Mary
Chapman said: "Given that bonuses provide a strong indicator of company
and personal performance, these figures further demonstrate the unsettled
economic climate over the past year."
The study reveals that 52 per cent of directors received a
bonus last year, down from 66 per cent the previous year and 70 per cent in
1999.
Among those who received a bonus, its value dipped from 27 per
cent to 23 per cent of salary.
More than 50 per cent of directors earn more than
£100,000,while 5 per cent earn more than £250,000.
Overall, managers have fared slightly better, either
maintaining their position or improving it with earnings increasing 6.2 per
cent in the year to January 2002, up from 5.5 per cent the previous year.
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The survey finds that managers’ average earnings (basic plus
bonus) have broken the £40,000 barrier for the first time.
