Boardroom salary rises harm business reputation, says IoD

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The Institute of Directors (IoD) has attacked “unsustainable” rises in boardroom pay and called for changes to the current rules as it warned the reputation of business was being damaged by pay deals which were not linked to performance.

At the end of a week in which a report by the High Pay Commission (HPC) warned large pay deals were “corrosive” to the economy, Simon Walker, director general of the IoD, said: “The legitimacy of UK business in the eyes of wider society is significantly damaged by pay packages which are not clearly linked to the performance of a company.”

In a strongly worded submission to business secretary Vince Cable’s discussion paper on remuneration, Walker added: “The IoD has noted, with growing concern, the rapid rise in executive remuneration at the largest listed UK companies over the last 10 to 15 years. We are aware of the difficult challenges faced by remuneration committees in responding to a global market for executive talent. But the current pace of increase in executive pay is unsustainable.”

Walker called for shareholder votes on remuneration policies, currently advisory, to become binding and for greater diversity in boardrooms to increase “objective scepticism” about pay deals. He also recommended voluntary discussions between employee representatives and remuneration committees and more information about the consultants used by the companies to help determine pay deals.

“Shareholders should also play a more active oversight role,” said Walker. “Remuneration committees should explore ways of engaging with employees on remuneration policy. This will be important in increasing the legitimacy of executive remuneration in the eyes of wider society,” he said.

The government, and particularly Cable, argue there is increasingly a consensus forming that boardroom pay deals are unacceptable and endorsed this week’s High Pay Commission report, which found executive pay had risen sharply at a time when average wages have risen threefold.