Executive pay is ‘not fit for purpose’ and needs reform, City bosses warn

Nigel Wilson, Legal & General chief executive, David Tyler, Sainsbury's chairman, and Helena Morrissey, chief executive of Newton Investment Management, were among the members of the Executive Remuneration Working Group that compiled the report

The era of big bonuses might soon be coming to an end (Stockbyte/Getty Creative)

Britain’s high profile bosses are calling for a reform over executive pay to restore confidence in a system that is seen as “broken”, according to a new report.

Nigel Wilson, Legal & General chief executive, David Tyler, Sainsbury's chairman, and Helena Morrissey, chief executive of Newton Investment Management, were among the members of the Executive Remuneration Working Group that compiled the report, published in conjunction with the Investment Association.

They argued that today’s remuneration system has resulted in companies paying oversized bonuses to their executives which are not equivalent to the success of their firms.

Executive pay has more than trebled since 1998, which the FTSE is trading at broadly the same levels.

“The current approach to executive pay in UK listed companies is not fit for purpose and has resulted in a poor of alignment of interests between executives, shareholders and the company,” said Nigel Wilson, Chairman of the Executive Remuneration Working Group.

Companies should move away from the current one-size-fits-all model, the group said. A range of different options should be considered when deciding on executive pay structures, based on their own business strategies and circumstances, they added.

Mr Wilson said that “greater transparency” is now vital to restore trust in the system.

“Greater transparency, clearer alignment of shareholder, company and executive interests, more accountability on the part of Remuneration Committees and greater engagement with and control by shareholders, working through company boards, are vital to restore confidence in a system widely seen as broken,” Wilson said.

The report comes ahead of a consultation to take place in the coming weeks.

Executive pay is back in the spotlight after BP shareholders voted against chief executive Bob Dudley's £14 million pay deal.

Mr Dudley was in line for a pay rise that would have taken his salary package to £13.8 million in 2015 despite BP profits falling and thousands of staff losing their jobs.

But the era of big bonuses might soon be coming to an end. A report by the accountants Deloitte said “two in five FTSE 100 CEOs received a salary freeze this year” and talked of “continued restraint” by boards.

Richard Pennycook, chief executive of the Co-op group, has surpisingly asked for his pay packet to be cut by 60 per cent having seen the first signs of success with his turnaround of the food-to-funerals conglomerate.

Mr Pennycook’s base salary will be cut to £750,000 from £1.25 million, while his incentives will be brought in line with other senior managers’.