The Institute of Directors (IoD) has called for tougher rules on executive pay, including greater transparency over the effect of share buy-backs,  in its response to the Financial Reporting Council’s (FRC) consultation on the revised UK corporate governance code.

The IoD has also suggested that remuneration committees at large listed companies should be made to report whether boards who had decided to buy back the company’s shares had then seen a boost in the packages paid out to executives. The consultation response also proposed that the revised code should force companies to make clear that executives would have to pay back bonuses in cases of gross misconduct, material accounting restatements or insolvency.

Dr Roger Barker, the IoD’s head of corporate governance, said: “ Business leaders will support the regulator’s attempts to ensure the code now takes better account of a number of key governance issues, such as ensuring workers have a greater voice in the boardroom. The code correctly allows companies to do this in their own way, increasing boardroom diversity and highlighting the importance of companies taking a long-term approach to their business. The code could go further, however, in pushing greater transparency and accountability over executive pay.

He added: “We are frustrated that this redraft of the code has not emphasised the important role that professional development and training of directors could play in improving board-level behaviour and decision-making. As in other professions, effective directorship demands specific skills and expertise. We must ensure that the people who sit on the boards of important UK companies have a profound understanding of what is expected in the delivery of good corporate governance – including the need to challenge and properly hold management accountable.

Meanwhile, the Pensions and Lifetime Savings Association’s (PLSA) response called for workers, pension funds and other stakeholders to be given real powers as part of the UK’s new corporate governance regime. The PLSA’s response also warned that the proposed new FRC guidance would do little to discourage excessive executive pay awards; welcomed the focus on diversity at senior levels of leading companies and recommended that the stewardship code should ask investors to outline how they consider the environmental and social impact of their investments.

Luke Hildyard, policy lead for stewardship and corporate governance, at the PLSA, said: “Companies need to account for their employment models and working practices far more effectively than is currently the case. Just 7% of FTSE 100 companies report on their use of agency workers, while only 21% provide data on training and development*.

“The proposed new measures will help in this respect and its good news that companies have been allowed the flexibility to choose which option works best for them. However, the authority and accountability of the new corporate governance regime need clarification and there is a risk that these new measures will represent an ineffective gesture unless the different options for increasing stakeholder voice include key rights and responsibilities.

“For example, worker directors or non-executives with responsibility for stakeholder issues should have to answer to the workers and other stakeholders. Stakeholder committees should be able to provide unvarnished criticism of boards, when warranted.”

 

Last Updated: 2 March 2018
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