Directors' remuneration

The Government is consulting on arrangements to address the conflict faced by directors in setting their own pay. Shareholders have the power to influence directors' remuneration, but directors' pay does not match company performance. 

The consultation seeks to address the apparent short-term objective of capital markets and the issue that engagement between companies and investment managers does not foster long-term business success. Within the consultation, the Government seeks to address concerns that the incentives of company directors do not align with the interests of shareholders. Executive remuneration has increased at a greater rate than the increase in the FTSE 100 index, retail prices, and the average increase in employee pay. 

The Government seeks views on the following issues:

  • It is considering whether or not remuneration committees, which determine directors' pay, are wide enough to match directors' remuneration with long-term company interests, and whether or not they take account of factors that are relevant to long-term company interests, for example pay and other terms and conditions of company employees. 
  • It has been suggested that information on remuneration is too detailed to be of any use. In addition, in recent years, there have been increasing opportunities for awarding a bonus to directors. The Government seeks to understand the relevance of better transparency of directors' pay. 
  • While shareholders have some control over directors' pay, it is unclear how effective they are, in particular in respect of payments for loss of office where shareholder approval is not required if made under an existing contractual entitlement. 

The Government seeks responses to the consultation by 14 February 2011. 

Also 

Annual review of pay trends 2009/10: Pay through the recession We present a review of pay trends over the two years to August 2010, charting the road from a historic fall to the most common pay settlement being a pay freeze, to a pick-up in awards since January 2010. 

The XpertHR policies and documents section provides model contract clauses on directors, including an hours of work contract clause and a restrictive covenants contract clause; and model documents on pay levels and awards, including a policy on basic pay and pay reviews and a letter informing an employee of the outcome of a salary review.