Government response to the BEIS Committee report on Executive reward: paying for success

The Government this month responded to the BEIS Committee report on Executive reward: paying for success. This is within the context of a rise in shareholder objections to FTSE 100 executive pay last year with 18 of the FTSE 100 attracting shareholder opposition of 20% or more, double that of the previous year.

 To highlight a few key areas:

 Employee Representative on the Remuneration Committee

 ·       In response to the recommendation that companies should be required to appoint at least one employee representative to the remuneration committee to ensure there is full discussion of the link between executive pay and that of the workforce as a whole, the Government have responded to say they are “aware that several companies are already considering inviting an employee representative to attend at least one meeting each year”. However, they acknowledge “one method will not suit all”.

 Share buy-backs

 ·       With regard to the recommendation for the review of share buy backs (a report commissioned in January 2018 on whether these are being used to inflate executive pay) should be published without further delay, the Government have said they are still considering the empirical research and “will be making an announcement in due course”. It also references the FRC’s revised Guidance on Board effectiveness which suggests remuneration committees should consider using discretion to ensure remuneration outcomes are reasonable in the context of circumstances such as currency fluctuations and the impact of share repurchase schemes.

 Simplified executive pay

 ·       On the recommendation that executive pay should be simplified…”We favour a simple structure based on fixed basic salary plus deferred shares”, the Government comment “there are clear and encouraging signs of more companies and shareholders being ready to consider and adopt alternatives to LTIPs”. However, they believe it is up to companies and their shareholders to decide the most appropriate model.

 Further detail may be found at:  https://publications.parliament.uk/pa/cm201719/cmselect/cmbeis/2306/2306.pdf