Friday, 28 October 2011

UK: IDS research on FTSE100 director rewards

The rewards received by FTSE100 executive directors has received much media attention today, following the publication of research by Income Data Services. A summary of the research is available here (pdf), the much quoted headline from which reads: "FTSE 100 directors have seen their total earnings increase by an average of 49% in the last financial year, and are now averaging £2,697,664 per annum". The research is widely reported in today's newspapers: see, for example, The Guardian (here), Independent (here) and Daily Telegraph (here).

What much of the media coverage indicates is how complex reward structures have become in large companies, not helped by the fact that terms such as 'pay', 'remuneration' and 'earnings' lack precision. Indeed, the issue of transparency was one referred to by the prime minister when asked about the research. His comments are reported here by the BBC news website. The prime minister acknowledged that there was a problem with the way remuneration committees operate and, amongst other things, suggested that it was necessary to "strengthen the hand of shareholders". Yet despite these comments, it often seems as if the obvious questions are not asked. For example, what motivates directors? Is there too much disclosure?

It will be interesting to see what the Government proposes following its current consultation on directors' remuneration, which closes next month. The prime minister made his comments whilst in Australia where, earlier this year, the Corporations Amendment (Improving Accountability on Director and Executive Remuneration) Act 2011 became law, introducing the so-called 'two strikes and re-election' mechanism with regard to voting over the remuneration report. Would this be too radical for the UK?

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