UK: BIS proposals on pay and performance pass test

19 Aug 2013

The UK proposals for enhanced reporting on pay and performance have broad support among investors, says a Financial Reporting Lab report. The research, commissioned by the Government Department for Business, Innovation & Skills – Reporting of pay and performance – looks at:

  • The requirement to include scenario charts showing how directors’ pay varies with performance
  • The requirement to compare CEO pay with company performance – based on Total Shareholder Return (TSR)

The ‘scenario chart’ proposal – setting out “remuneration payable when performance meets, exceeds and falls below threshold/target” – was popular with both investors and companies. The research showed that common practice on measurement of, for example, the performance period, would be useful and would aid future disclosures as the remuneration climate changes.

There was also agreement on the second proposal – showing the relationship between CEO pay and TSR, but both groups voiced concerns about some of the detail. Investors were most concerned about clarity and transparency of information, while companies pushed back on the disclosure period rising to ten years.

The report demonstrates that investors are keen to understand how remuneration relates to performance in the long term. Overall, companies were in agreement with investors’ views and put particular emphasis on the need for ‘plain English’ descriptions for the variable elements of remuneration.