REINING IN THE FAT CATS

In the past few years, there have been a number of well-publicised examples of listed companies awarding senior executives huge pay rises, and others paying their under-performing directors significant termination payments on their removal from office. Trade unions, politicians and the mass media alike have all expressed their outrage at what they perceive to be rewards for failure.

Against this backdrop, the Association of British Insurers (ABI) and the National Association of Pension Funds (NAPF) have together released guidance on executive remuneration and severance payments, as has the CBI. These guidelines have been released in the hope that industry will be able to keep directors’ remuneration and severance payments under control without the need for the Government to introduce legislation.

Although both guidance documents are aimed at listed companies, the guidelines are also relevant to those companies with aspirations to float in the future. In addition, the principles contained within the guidance are relevant to those companies with private equity funding, as venture capitalists will, in the majority of cases, require similar standards of corporate governance as institutional shareholders. The Combined Code as issued by the Financial Reporting Council that forms part of the Listing Rules also provides some guidance on what should be considered best practice on corporate governance matters and remuneration - useful for all companies, irrespective of their size.

The recommendations contained within the CBI Guidance and the ABI/NAPF Guidelines are too numerous to set out in any detail in this Employment Angle. However, some of the key guidelines are as follows: