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Executive pay is a problem says IoD

Call to end ‘remuneration creep’ at top companies

Simon Walker IoDAn influential group of City and business leaders has condemned the current approach to executive pay in UK listed companies as “not fit for purpose”.

The Executive Remuneration Working Group has published recommendations to end “remuneration creep”, where pay is driven up because no company wants to be seen to be below average.

Its verdict coincides with comments from Scottish tycoon Jim McColl who yesterday described the pay of some business leaders as “absolutely crazy”.

Criticism has mounted following the £14 million pay and benefits package awarded to BP chief executive Bob Dudley which prompted a shareholder rebellion last week. Despite the protest, the vote against his pay deal was not binding.

Simon Walker, director general of the Institute of Directors, welcomed the report. He said: “It is increasingly clear that there is a problem with executive pay at big listed companies.

“The introduction of binding votes on pay policy has not had the kind of immediate and positive impact regulators and government would have wanted. Whilst some improvements have been made, the rebellion over BP’s remuneration report last week has shown that there is still considerable shareholder unhappiness.

“Today’s report is a timely and important intervention in the debate around how remuneration is designed. We are pleased that the report has called for pay-setting to recognise company performance, be clear and simple, and aligned with shareholders’ interests.

“Importantly, the report also recommends that pay policies for senior executives are consistent with the approach for other employees. This is a worthy intervention that, if adopted by the market, could go a long with to restoring trust in our largest companies.

“The current approach to executive remuneration is failing. We are looking forward to engaging with this worthwhile initiative, and urge FTSE boards to do the same.”

Mr McColl made his comments at the Entrepreneurial Scotland conference at Gleneagles.  He said chief executives “do have to get a good return, but the balance is just absolutely crazy.”

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