Shareholders and boards at odds over bosses pay

Companies have been faced with rising demands to come clean on pay

Equal Pay Day for 2015 is 9th November, five days later than 2014's, which indicates that the pay gap is closing but slowly (Getty)

Top investors are frustrated by the failure of the FTSE 100’s remuneration committees to take account of mounting public anger over bosses’ pay and don’t trust them, a report out today will warn.

It follows an admission by the former business secretary Vince Cable that reforms he enacted while in office had not gone far enough to curb excessive pay awards at a recent event hosted by the High Pay Centre.

The report, by the consultant PricewaterhouseCoopers, states: “Investors have been frustrated by some remuneration committees’ apparent unwillingness to read the public mood on executive pay.” It says there is a “lack of trust” on both sides, with many company boards feeling that institutions are “more concerned with ticking governance boxes than helping them align pay with company strategy”.

The report says that moves to force greater transparency on remuneration committees have resulted in bonus schemes that are more closely linked to performance. But it admits that there is still far too little variation in payments year by year. This has resulted in widespread cynicism over bonus payments that many feel are undeserved.

The report states: “Bonuses are a key part of the compensation packages of FTSE 100 CEOs. And they aren’t perfect – there remains a challenge for companies about whether there is enough variation in payouts year on year.”

But it says companies that publish bonus criteria usually have packages which are better linked to performance, and it calls on more of them to follow suit.

“Rather than shaming companies into pay restraint, disclosure of individual pay levels is widely credited with fuelling the increase in executive pay in the early part of this century,” the report says. “But the evidence suggests that disclosure of bonus targets is having the desired effect.”

It adds: “There’s evidence that greater disclosure, and increased scrutiny from investors, is helping remuneration committees to take a tougher and more robust approach to the setting of bonus targets and the justification for the outcomes at the end of the year.”

It admits that this is not true in all cases, and that there may be a backsliding corps of companies reluctant to disclose the criteria they use to decide bonuses. “The extent and quality of disclosure [of targets] has been mixed,” it says.

Companies have been faced with rising demands to come clean on pay. They are now required to publish a “full year equivalent” based on salary, bonus, and share-based long-term incentive schemes. The latter have long been the biggest component of top executives’ pay.

Mr Cable admitted at the High Pay Centre last month that his decision to give investors a binding vote on company pay policies every three years had not had “a huge impact” on corporate behaviour. He said he would now demand companies publish a pay ratio between the top and the workforce, and take measures to include the views of workers in setting bosses’ pay.

An earlier report commissioned by the centre had called upon companies to scrap long-term incentive plans, arguing that they are not in the interests of investors.

Investors have bared their teeth at a number of companies over the past year, including Royal & SunAlliance and BG Group, whose chief executive Helge Lund was offered a £25m pay package to lure him away from Statoil. While BG amended the pay package conditions, there has been no repeat of the 2012 “shareholder spring”, which saw several investor revolts over pay.