ABI calls for simplified executive remuneration

Organisations should simplify executive remuneration structures to incorporate one annual bonus and one long-term incentive plan, according to the Association of British Insurers (ABI).

The ABI has published its updated Principles of remuneration 2012,which call for remuneration committees to strip away complexity and make executive remuneration more transparent.

The guidelines also recommend that organisations consider certain issues when deciding on the structure of executive reward, including:

  • When considering salary increases for executive directors, remuneration committees should be cognisant of the salary increases for employees in the wider workforce.
  • General employee costs and ensuring that the remuneration for executives is clearly linked to the delivery of the organisation’s strategy.
  • Committees should clearly demonstrate the link between pay and performance, and provide clear and concise disclosures which help shareholders make informed voting decisions.

However, Tom Gosling, head of reward practice at PricewaterhouseCooper, warned a one-size-fits-all approach may not always be appropriate.

“There is a risk that the ABI’s proposal that executive pay should be limited to a single bonus and one long-term incentive could give rise to the message that a one-size-fits-all approach is appropriate, which we do not believe is investors’ intention,” he said.

“The issue with the ABI’s request that organisations move to longer performance periods is that they become even more discounted in executives’ minds. It is difficult to see how a form of pay that has such low perceived value can have significant influence on behaviour.”