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The great pay debate

21 Feb 2012 | Tim Ward

money-in-pocket

MOST will have caught the recent headlines on executive pay - which predominantly started as a result of David Cameron's tough words on 'big rewards for failure' in the Telegraph in January.

Vince Cable's statement in Parliament a few weeks ago reinforced those views and announced a number of upcoming proposals to curb excessive pay, including reformatting remuneration reports, requiring companies to explain how they have consulted with employees on executive pay, introducing binding shareholder votes on pay and more.

As we wait for the detail of these proposals to be published by the Department of Business, Innovation and Skills, I can't help but think about the cause of this debate - and I don't think it is the remuneration of small and mid-sized company directors.

The boardroom pay issue has come to a head because of the activities of a minority of very large companies - predominantly the big banks in light of the financial crisis. And it continues to happen - just this week Barclays has come under fire for bonuses paid out in 2011 and RBS's CEO was forced to give up his £1m bonus after mounting political pressure. So it's not surprising that the Government is pursuing these proposals - they want to see more clear explanations on pay to shareholders and ensure that pay is matching up with performance and not encouraging excessive risk-taking. I'm not sure anyone can argue against that.

But we can certainly argue over what should be done. We at the Quoted Companies Alliance are concerned that these proposals may be passed down to small and mid-sized quoted companies. As I suggested earlier, small and mid-size quoted companies generally do not pay their executives excessive salaries and their failure would not present a systemic risk to the UK economy.

A proportionate approach to the proposals on executive pay must be adopted for small and mid-sized quoted companies so that they can grow and create employment, which is necessary for the UK's economic recovery. This is why the Quoted Companies Alliance is publishing a Remuneration Committee Guide for Smaller Quoted Companies at the end of this month, with the goal of helping these companies develop their remuneration policy and how they communicate it to their shareholders and other stakeholders.

A number of the Government's pay proposals could present practical difficulties for smaller companies in particular. In our most recent QCA/BDO Small and Mid-Cap Sentiment Index survey, we asked the small and mid-cap sector what they thought about a binding shareholder vote - and we got some robust responses - but, you'll have to wait until the report is published at the end of February to find out what they said.

In the end, the devil is in the detail - and the detailed Government proposals on executive pay are due to be published for consultation any day now. I'm sure that there is a long and continued pay debate ahead of us.

Tim Ward is chief executive of the Quoted Companies Alliance, the independent membership organisation that champions the interests of small and mid-size quoted companies. His past roles have included head of issuer services and head of marketing at the London Stock Exchange and finance director at FTSE, the index company.

 

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