Excessive boardroom pay ‘affects the standing of business in society’ – Financial Reporting Council

‘The continuing inconsistent alignment between executive remuneration and company performance and between the remuneration of senior executives and employees has led to a lack of public confidence. This has taken place despite increasing regulation to improve transparency and accountability.’ That’s one of the main messages to emerge from a new study by the Financial Reporting Council (FRC), exploring the relationship between corporate culture and long-term business success in the UK.

According to the FRC, executive remuneration practices are often cited as a driver of poor behaviour. The report says:

‘The incentives created by performance-related pay, and the corresponding impact on employee behaviours, is something that should be of utmost concern to boards and remuneration committees, which could do more to apply a cultural and values lens to the design of remuneration policies and individual remuneration decisions.’

It adds:

‘Recruitment, performance management and reward should support and encourage behaviours consistent with the company’s purpose, values, strategy and business model. Financial and non-financial incentives should be appropriately balanced and linked to behavioural objectives.’

FRC: Aligning HR processes and reward – issues to consider

• How is corporate reputational risk considered in the setting of incentive pay?
• Does the balance between financial and non-financial incentives support the desired culture?
• Are behavioural objectives included in leadership and employee goals and are behaviours formally assessed as part of performance review activity?
• Have we considered whether top tier executive pay awards and those of other employees could undermine culture?

The FRC is responsible for ‘promoting high quality corporate governance and reporting to foster investment’. The Culture Coalition is a collaborative effort with:

• Chartered Institute of Management Accountants
• City Values Forum
• Chartered Institute of Internal Auditors
• Chartered Institute of Personnel and Development
• Institute of Business Ethics

The aim has been to gather insight into corporate culture and the role of boards; to understand how boards can shape, embed and assess culture; and to identify and promote good practice.

‘Corporate Culture And The Role Of Boards’, Financial Reporting Council, July 2016. To download the 66-page PDF report, please visit: www.frc.org.uk/Our-Work/Publications/Corporate-Governance/Corporate-Culture-and-the-Role-of-Boards-Report-o.pdf