FSA’s remuneration code of practice may have little impact

Remuneration and bonus guidelines issued by the Financial Services Authority (FSA) are being ignored by businesses fearful of losing their most talented staff. 

According to research by law firm Pinsent Masons, 84% of companies believe the FSA’s code of practice will have little or no impact on how executives are rewarded, and more than three-quarters (78%) are not considering reviewing their severance terms to avoid executives getting large pay-outs.

The findings come as the FSA’s consultation on its code of practice closes, prior to a final publication in July and a possible implementation in November. The survey also follows a number of high-profile shareholder protests over remuneration policy. Earlier this month, shareholders in Royal Dutch Shell and mining company Xstrata protested over rewards to executives, with more than a third of shareholders voting against the remuneration committee report at each company.

In April, Brussels released guidance on director’s pay, with recommendations on the structure and determination of director’s remuneration, and earlier this month the government published a report into the future of the financial services industry which recommends organisations in that sector follow the FSA’s guidelines, among others. However, a number of large companies, particularly in the financial sector, have raised concern over restrictions on remuneration.

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Tom Flanagan, employment partner, at Pinsent Masons, said: “Since the FSA first commented on bonuses and remuneration last autumn, there has been a greater focus on senior level pay, but, in many cases, bonuses have continued to be paid even though performance objectives have not been met. While this may seem perverse given the current state of the economy and the shareholder unrest it has created, we feel it highlights two fears among businesses: a fear of losing top executives at a time when it could be argued they are needed most, and a fear of tackling the thorny issue of changing contracts.

“Businesses are in a catch-22 situation. They are under pressure to rein in benefits which are now deemed excessive by some stakeholders but they also need to retain their best talent to help get them through the recession. Not paying bonuses could lead to the exit of senior staff which could explain why discretionary benefits continue to be granted even if the business is not performing well.”