In this guest article, Cliff Weight of remuneration consultants MM&K responds to a comment from David Brimacombe, senior advisor to Nestor Advisors on our January piece:  ‘Remuneration Committee “Cronyism” – digging deeper’. The article was written in response to assertions from the UK’s prime minister David Cameron and cabinet colleagues that shareholder’s had failed to tackle remuneration committee independence and that serving CEOs were sitting on each other’s committees awarding themselves massive salary increases. Former company secretary David was looking for something else:

“The headline linking cronyism to remuneration committees did not deliver what I was anticipating namely an expose of the role of remuneration consultants who to my mind are heavily implicated in devising many of the schemes which are now under critical review. The change required is for the name and fees of all remuneration consultants to be published in the annual report. Remuneration committees are heavily dependant on such consultants who therefore enjoy a disproportionate influence; too often they seem to be keen to impress the CEO rather than consider the interest of shareholders.”

Cliff Weight responds:

David at Nestor Advisors makes a good point about looking at all the advisers. However the momentum to disclose remuneration consultants fees in a similar way to auditors fees makes it likely to happen. If we as a group now muddy the water by also suggesting at this late stage that fees for lawyers, strategy consultants and bankers should also be disclosed, then this risks further delay and prevarication.

The key issue is that with remuneration (and audit) there is a conflict of interest between the executive directors (who are the agents of the shareholders) and owners of the company. Hence the legal requirement for the publication of audit fees and remuneration fees must be a priority.

In our annual survey of the views of Chairmen and Non-Executive Directors we asked about the value for money of advisers, and remuneration consultants did not score as badly as investment bankers. 

We asked if the advisers give good value for the quality of services provided. Congratulations to the accountants. Poor marks for banks (we were not surprised). Poor marks for remuneration consultants (we were surprised, but view this as an opportunity to provide good value high quality remuneration advice). The results were as follows:  

Value for Money of Advisers
Source: MM&K Life in the Boardroom Survey 2012

Advisers provide good value for money	Banks and advisers to raise investment funds	Accountants	Lawyers	Remuneration Consultants
Disagree strongly	12%	3%	4%	6%
Disagree	42%	19%	29%	29%
Neutral	29%	36%	37%	49%
Agree	14%	41%	29%	13%
Agree strongly	1%	1%	1%	2%
Average score*	-0.51	0.20	-0.06	-0.25

 * we calculated the average score by scoring disagree strongly =-2, disagree =-1, neutral =0, agree =1 and agree strongly =2.

The average rating for accountants was plus 0.2; lawyers scored an average of minus 0.06, remuneration consultants minus 0.25 and bankers minus 0.51.

Best practice might become the disclosure of other fees along the lines that David suggests, but legislation in not needed for companies to do the right thing in this regard.

Last Updated: 17 March 2012