EXECUTIVE PAY
Concerns over code of conduct for pay consultants
The Association of British Insurers is to push for tighter rules for pay consultants advising on executive remuneration because they say a draft code of conduct proposed by the firms would do little to curb boardroom excess, the Financial Times reports.
The “best practice” guidelines put forward by seven leading pay consultancies have been designed to counter significant unease about the independence and quality of their advice. The draft code of conduct was signed by Deloitte, Hay Group, Hewitt New Bridge Street, Kepler, Mercer, Towers Perrin and Watson Wyatt and published as an annex in the Walker Review.
The code is set out in Annex 11 of the the Walker Review (see below for details).
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Want to know more?
“Misgivings over code for pay consultants”, by Adam Jones, Financial Times, 23 August 2009.
www.ft.com/cms/s/0/df00f23e-901f-11de-bc59-00144feabdc0.html.
“Uncertainty over code for pay consultants”, by Adam Jones, Financial Times, 23 August 2009.
www.ft.com/cms/s/0/99697204-9020-11de-bc59-00144feabdc0.html.
The Walker Review
The Chancellor of the Exchequer, the Secretary of State for Business, Enterprise and Regulatory Reform and the Financial Services Secretary to the Treasury asked Sir David Walker to conduct an independent review to recommend measures to improve the corporate governance of UK banks, particularly with regard to risk management.
--> A Review of Corporate Governance in UK Banks and Other Financial Industry Entities, published July 2009:
To download the 138-page report in PDF format, visit:
www.hm-treasury.gov.uk/d/walker_review_consultation_160709.pdf.
DOCUMENT EXTRACT
Title: A Review of Corporate Governance in UK Banks and Other Financial Industry Entities
Best practice standards for remuneration consultancy
. . . 7.37 In response to concerns such as these, a group of the main remuneration consultants has proposed and published the draft code of best practice set out in Annex 11. This is welcome, and while views are being sought on the draft code by its authors on the further development that may be needed, it seems appropriate to review how a final version might best be embedded alongside an enhanced corporate governance process. For it to be fully effective, the code needs to be “owned” by those who prepared and are committed to it. The proposal of this Review is that such ownership might best be achieved through creation of a professional grouping which should, without need for substantial additional resource or bureaucracy, be capable of creating and maintaining a website to provide detail on and access to the code, with an indication of those who have committed to comply with it; and a capability to review and update the code over time in the light of experience. The authors of the present draft code have indicated that it is their intention to create a professional grouping on these lines.
7.38 Given the high importance of the remuneration process within overall corporate governance, it is further proposed that the definitive version of the code be deposited with and available on the website of the [Financial Reporting Council] FRC, with the listing of consulting firms that have committed to it. This would seem consistent with the association of the FRC with high standards of best practice across the whole front of corporate governance. In particular with the implicit additional weight given to the code by its lodgement with FRC in this way, it would seem the natural course for remuneration committees to make commitment to the code a condition for their engagement of a remuneration consultant.
Recommendation 38
The remuneration consultants involved in preparation of the draft code of conduct should form a professional body which would assume ownership of the definitive version of the code when consultation on the present draft is complete. The proposed professional body should provide access to the code through a website with an indication of the consulting firms committed to it; and provide for review and adaptation of the code as required in the light of experience.
Recommendation 39
The code and an indication of those committed to it should also be lodged on the FRC website. In making an advisory appointment, remuneration committees should employ a consultant who has committed to the code.
DOCUMENT EXTRACT ENDS