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Good Governance Press Releases

IoD calls for tougher rules on executive pay in new governance code

27 Feb 2018

The Institute of Directors has today called for tougher rules on executive pay, including greater transparency over the effect of share buy-backs and clearer criteria covering when bonuses can be clawed back for failures. Responding to the Financial Reporting Council’s proposed revisions to the Corporate Governance Code, the IoD said that remuneration committees at large listed companies should be made to report whether boards who had decided to buy back the company’s shares had then seen a boost in the packages paid out to executives, an issue that is currently the subject of a government investigation.

The IoD, which has a Royal Charter to ‘promote for the public benefit high levels of skill, knowledge and integrity on the part of directors’, also called for the revised Code to force companies to make clear that executives would have to pay back bonuses in cases of gross misconduct, material accounting restatements or insolvency.

While the Institute welcomed the FRC’s attempts to simplify the Code, it criticised the lesser status given to professional development in the proposed new version as a result. In the wake of the collapse of Carillion, after which executives were criticised by MPs for their actions in the firm’s final months, the IoD said that director training should not be relegated to the guidance, rather than the main Code, as had been suggested.

The full submission can be viewed here

Dr Roger Barker, Head of Corporate Governance at the Institute of Directors, said:

“Following the collapse of Carillion, and in an atmosphere of growing public concern about occasionally excessive executive pay, the FRC have a chance to use revisions to the Code to bolster corporate governance in the UK. Business leaders will support the regulator’s attempts to ensure the Code now takes better account of a number of key governance issues, such as ensuring workers have a greater voice in the board room. The Code correctly allows companies to do this in their own way, increasing boardroom diversity and highlighting the importance of companies taking a long-term approach to their business. The Code could go further, however, in pushing greater transparency and accountability over executive pay.

“The IoD welcomes the FRC’s attempts to simplify the Code – which is often seen as a complicated document – however in doing so, it has placed less emphasis on director training. We are frustrated that this redraft of the Code has not emphasized the important role that professional development and training of directors could play in improving board-level behaviour and decision-making. As in other professions, effective directorship demands specific skills and expertise. We must ensure that the people who sit on the boards of important UK companies have a profound understanding of what is expected in the delivery of good corporate governance – including the need to challenge and properly hold management accountable.”

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