Performance focus for executive remuneration

Morrisons is the latest employer not to award annual bonuses to executive directors after they failed to meet the supermarket chain’s underlying profit-beforetax growth target.

The move, revealed in Morrisons’ annual report in May, follows similar announcements of bonus cuts for executives in organisations such as Aviva, Lloyds Banking Group and Trinity Mirror.

This points to an increased focus on pay for performance in the design of remuneration packages for executive directors.

Deborah Hargreaves, director at the High Pay Centre, said: “There are several different elements of performance pay now. These tend to push up the package a lot and are responsible for multi-millionpound awards. There is a big question mark over whether they really do create [the] performance that shareholders say they want.”

Roger Barker, head of corporate governance at the Institute of Directors, said the use of performance criteria makes sense, but employers must ensure there is transparency in the scheme.

Long-term incentive plans (L-tips), in particular, can be difficult to understand and are not typically considered to be a long-term incentive, given their three-year duration, he said.

“It is key that shareholders really do step into the breach and introduce a degree of accountability,” Barker added. This transparency must be obvious to shareholders.

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Barker and Hargreaves will take part in a panel debate on executive pay and bonuses at the Employee Benefits Summit 2013 in Alicante, Spain on 25 June