Developments in Remuneration Policy |
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| Authors: | Alastair Ross Goobey |
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| Institution: | Senior Advisor to Morgan Stanley International. He is also a corporate director, and is currently the Senior Independent Director of GCap Media plc, the UK's largest commercial radio group, and chairman of its Remuneration Committee. He was chairman of the International Corporate Governance Net work for the maximum three-year term until July 2005. He is also a member of the European Commission's Corporate Governance Forum. From 1993 to 2001 he was Chief Executive of Hermes Pensions Management Ltd., the executive arm of the BT Pension Scheme, which also provided specialist investment management services to a range of additional clients from around the world. He has served on a number of boards, and currently also chairs a private company, as well as serving as a Governor of the Wellcome Trust, the largest U.K. charity, which funds bioscience research at a rate of some $800 million a year. |
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| Abstract: | In this article, the former chairman of the International Corporate Governance Network (ICGN) begins by summarizing the guidelines on "Executive Remuneration" that were published by the ICGN in July 2002. Among other changes, the guidelines called for independent remuneration committees, full disclosure of remuneration packages in an annual report, reduced reliance on stock options, elimination of executive loans and CEO bonuses for making acquisitions, better-informed and more active institutional investors, and a "clear mechanism by which shareholders are given the opportunity—possibly through an advisory vote at the annual shareholder meeting—to review and influence remuneration proposals."
Thanks in part to the efforts of the ICGN and growing investor activism, U.K. companies have made "a reasonably swift transition to a position where the majority of their boards are totally independent of management, and free of other potential conflicts of interest." U.S. boards, by contrast, remain "dominated by the imperial CEO" and "have failed to rein in the ambitions and appetites of their CEOs in such circumstances." What's more, U.S. institutional investment managers have failed to hold boards accountable for escalating remuneration. The solution to this problem lies, as suggested above, in "greater transparency, better analysis, and more shareholder monitoring." |
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