HR REWARD AND BENEFITS


Naturally, HR feeds into the process of executive pay, but does not drive it


Sheila Bouman/Peer 1 Hosting


to pass. The vote will be held annually, unless companies choose to leave their remuneration policy unchanged, in which case it will be compulsory at least every three years. Cable’s proposals, which the Government hopes to


introduce in October 2013, state executive pay policies should clearly set out how pay supports the strategic objectives of the company, and should include better information on how directors’ pay compares to that of the wider workforce. Companies will also have to report details of whether they met performance measures and provide a comparison between company performance and chief executives’ pay, as well as report a single figure for the total pay directors got for the year. This figure will cover all rewards received by directors, including bonuses and long-term incentives. The proposals also say companies will have to clearly


explain their approach to exit payments, which will also be subject to the binding vote. And – for the first time – once a policy is approved, companies will not be able to make payments outside its scope. If a company chooses to change its pay policy, it will have to put it before shareholders for re-approval. The Government hopes this will encourage companies to devise long-term policies and put a brake on annual ‘pay ratcheting’. Alongside the binding vote on policy, shareholders will


continue to have an annual advisory vote on how pay policy was implemented in the previous year, including actual sums paid to directors. If a company fails the advisory vote, it will be required to put its overall pay policy back to shareholders in a binding vote the following year. The UK’s corporate governance regulator, the Financial


Reporting Council, is also set to consult on updating the Corporate Governance Code, so companies would have to make a statement when a significant minority of shareholders votes against a pay resolution. On the face of it, Cable’s reforms seem to be an area ripe for


HR directors’ expertise. But HR practitioners and industry experts have mixed views on how involved HRDs will be in the process, and what the profession can contribute. Barry Hoffman, group HR director at IT services company


Computacenter, does not believe the changes will have any impact on the work of HR. “Executive pay – typically that of the CEO and the finance director – is in the hands of the


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remuneration committee. HR tends to work on the remuneration and reward and incentive schemes for senior management and the rest of the company. Therefore, I can’t see how HR would get pulled any deeper into this.” Sheila Bouman, chief people and performance officer at


web infrastructure hosting company Peer 1 Hosting, says in the US and Canada, steps to force companies to increase disclosure on executive pay have become a legal and regulatory compliance issue – that is not led by HR. “HRDs never saw this as a value-adding area for them to


get involved in,” says Bouman. “They were right. Executive pay packages are the responsibility of the compensation committees and are led by legal compliance officers and investor relations. Naturally, HR feeds into the process, but does not drive it.” Bouman also believes companies should be wary of


focusing on just one issue that has irked shareholders – and the media – rather than concentrating on other areas that contribute to good corporate governance. “Companies may be at risk of concentrating too heavily on


getting shareholder approval for executive remuneration schemes, while neglecting other aspects of corporate governance that are equally as important and emotive, such as environmental reporting and sustainability programmes,” Bouman adds. HR consultants also have doubts about whether the


relationship between executive pay and investor relations is an appropriate area to which HR directors should provide much input. Mark Childs, managing director of rewards consultancy Total Reward Group, does not believe the binding shareholder vote will improve the image of HR. “It may even diminish it,” he says. “I don’t think many HRDs will press too hard to get more involved with institutional investors. Why should they? HR has little interaction with investor relations and does not determine how executive rewards are structured – that is the job of the remuneration committee,” says Childs. He adds: “Executive pay schemes can be complicated to put


together and rely on a lot of technical detail, and external consultants tend to put them together, rather than HR. I can’t see that situation changing, and there is likely to be a growing dependence on external expertise to ensure pay deals are


HR Supplement September 2012 17


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