HR
directors have been urged to play a more active role in deciding executive
compensation to help avoid regulatory difficulties and accusations of ‘fat-cat’
pay.
Companies
such as GlaxoSmith-Kline,
Sainsbury’s, Carlton and HSBC have all attracted high-profile criticism from
shareholders and unions in recent years for awarding massive payments to senior
executives while cutting costs in other areas.
The
average pay packet of a FTSE 100 chief executive climbed to £1.5m in 2003,
according to new research from accountancy firm KPMG. This represents an 8 per
cent rise on the year before, and twice the average UK-wide increase of 4 per
cent. Average executive pay across the FTSE 100 last year was up by 7 per cent.
HR
can help prevent controversy by being more involved in pay decisions and taking
some of the pressure away from board members, according to Sean O’Hare, head of
executive compensation at KPMG.
"Executive
pay is one of the most contentious issues for a board member as it is all
rather vague – there are no strict rules – and emotive, as they sit with these
people all year," he told delegates at the Economist HR Directors’
European Summit.
One
of the major ways in which HR can help companies make these decisions, is by
formulating a policy on pay levels, O’Hare said.
"One
of the National Association of Pension Funds’ (NAPF) suggestions is that all
companies should have a policy on the ratio of pay increases between executives
and employees," he said. "Boards are overwhelmingly against this, but
companies should consider it."
And
it is not just pay – HR professionals should also get involved in other
top-level decisions.
O’Hare
said: "The quality of non-executive directors is a good one for HR to get
involved in, while disclosure impacts on employee communications. In many
organisations, HR leaves these issues to others, but if HR is not involved, it
is ignoring a major part of its role."
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