Cliff Weight advisory board member of the High Pay Centre blogs about his new book, the Directors’ Remuneration Handbook
Cliff Weight advisory board member of the High Pay Centre blogs about his new book, the Directors’ Remuneration Handbook:
Directors’ remuneration lies at the heart of the debate on effective corporate governance. This is the issue, above all others, in which directors face a conflict of interest. My new book casts a critical eye over these important issues as well as providing useful advice on how to set pay.
UK companies are rightly considered to rank among the best in the world in their standards of corporate governance and reporting. However, the recent economic crisis shone a spotlight on all aspects of our regulatory framework including our corporate governance model and forced us to consider where things have gone wrong and why. The broad consensus is that, while the UK model of corporate governance is not essentially flawed, there are areas where we all need to do better – as government, as companies and as shareholders.
Our goal must be to ensure that our companies are clear-sighted and focused on the issues which matter to their long term success and therefore to their shareholders. Disclosing clear, relevant information on these issues in company reporting is necessary if shareholders are to make well informed decisions in their role as company owners. And it is very important that there is a clear link between the company’s strategic objectives and the criteria for payments to directors.
In the US, changes have been made by improving the disclosure of executive pay, and by introducing a vote on executive compensation- the “say-on-pay”.
In the UK, we have avoided a spate of regulation, but we have had significant consultations on the importance of long termism in corporate Britain, on narrative reporting and on the disclosure of directors’ remuneration. New legislation is proposed for 2013. Our approach continues to be driven by the concepts that:
i. it is the shareholders’ responsibility to control and approve directors’ remuneration; and
ii. it is government’s responsibility to ensure that the Companies Act and supporting frameworks enable shareholders to receive information so as to be able to exercise their rights.
How much, when to pay, what to pay for and how to motivate directors are the key questions. Easy questions to ask but good answers require a detailed framework of knowledge. It is important to get the structure of executive pay right and in this book, I give a detailed description of how to do that. This is particularly important when setting performance targets that work.
As a remuneration consultant for 27 years, I’ve advised on a lot of pay schemes. In this book, I have distilled my experience into some guidance on what works and what doesn’t.
As the book points out, there is no panacea, but shedding light on what is happening, combined with greater insight, should help the quality of the debate. I hope this will foster some informed discussion and should appeal to anyone who wants to understand the arguments on pay and some of the reasons behind corporate remuneration awards.
Cliff Weight is a member of the High Pay Centre’s advisory board.
Order your copy of the Directors’ Remuneration handbook on Amazon here