Code of conduct for pay consultants does not go far enough

A code of conduct for consultants and advisers that deal with executive pay falls short of what is required to curb excessive remuneration policies, according to Association of British Insurers (ABI).

The ABI has criticised the code, which was drafted by seven leading employee benefits consultancies, for not going far enough to acknowledge possible conflicts of interest between consultants and the company’s remuneration committee.

For example, pay consultants have been accused of conflicts of interest if they provide other HR services to the company whose executive pay they advise on.

Peter Boreham, head of executive pay consulting at the Hay Group, said: “I think the thing that all parties should remember is remuneration consultants are only business advisors that act in the interest of the organisation and shareholders. There is no reason why they should particularly wish for executive pay rises.

He also refuted claims that consultants are more likely to receive higher fees if the chief executive of a company is paid more. “Remuneration consultants are paid rather like lawyers or accounts on an hourly fixed rate,” he explained.

He also said the “obsession” about executive reward that might make up only a small proportion of a company’s budget, deflected from the role of consultants advising on organisational strategy, which is likely to have a large impact on a firm’s financial results.

Issues surrounding the role of remuneration consultants were flagged up in David Walker’s report on corporate governance in the financial services sector, which was released last month.

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