Reporting remuneration

With Ed Milliband and David Cameron both scoring political points on the issue of executive remuneration right now, it will be interesting to see whether remuneration reports in the next batch of annual reports will take on a different shape, or at least in some way react to prominent public debate about executive pay.

Not only are the Great British Public up in arms about the gap between executive pay and the average employee, but most are dumbfounded by executives continuing to receive large scale pay outs when the company they lead has demonstrated significant failures.

One of the projects suggested for the Financial Reporting Council’s Lab – a virtual space for companies and investors to develop better reporting together – is the remuneration report. The project aims to evaluate the effectiveness of these reports, assessing the length of disclosure relative to materiality and importance, and to determine best presentation of how much is paid and for what incentive triggers. It’s also going to consider the BIS ‘Executive Remuneration’ Discussion Paper, from September 2011.

Ed Milliband has quite simply suggested an employee representative sits on the Remuneration Committee. Yes! That surely would help ensure ‘appropriate and balanced’ remuneration for executives and their senior teams. Appropriate and balanced are two words lifted from a FTSE 100 company’s remuneration report. Does that mean appropriate and balanced relative to other executives in other companies or relative to average employees? We think we know.

Part of the problem seems to be a common set of people sitting on Remuneration Committees from one company to the next, meaning the same high levels of pay reoccur without enough consideration of particular circumstance. So this year remuneration reports might begin to spell out who’s on the Remuneration Committee and where else they govern on the subject. This would be a helpful bit of transparency revealing just how close knit the decision-making is on the subject.

Deeper, more detailed explanation of what executives have achieved in order to receive their rewards would be another great bit of transparency, creating a more explicit joining of the dots between the Operating and Financial Review and Remuneration Report.

Whatever happens, you know the press are going to be all over remuneration reports this year. There’s too much news hidden within them to go to waste.