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Association of Chartered Certified Accountants on executive pay

John Davies, head of technical at the Association of Chartered Certified Accountants, talks to Bdaily about executive pay.

Are the proposals announced recently by the business secretary Vince Cable about executive pay going in the right direction – is it right that he is shining such a “harsh light into the murky world of corporate behaviour?“ – a phrase he used at party conference last year?

Cable’s recent announcement was a follow-on from the papers he issued last September on narrative reporting and executive pay. He’s clearly keen to explore these issues in depth. His most recent proposals are heading in the right direction regarding board pay, and Cable’s intervention comes at the right time. But it should be the first step in wider efforts to promote active shareholder engagement.

Does ACCA have any concerns?

Setting private sector board pay should remain a decision for companies themselves, but pay should always be balanced with shareholder value and company performance. However, pay should always be balanced with shareholder value and company performance. Remuneration decisions are fundamentally a matter for companies to decide for themselves.

As we move to annual reporting season, especially for big banks, does executive pay deserve the attention it’s received recently?

Board pay in recent years seems to have lost touch with a number of guiding principles; the link between pay, performance, and shareholder value has become blurred in some cases. Government, regulators and standard setters for business have an important role to play, as do shareholders. Decisions about pay need to into account the specific financial context in which a company operates, their goals, and their performance against targets. But pay decisions need to be consistent with the best interests of the company and its shareholders, and in line with the stewardship and fiduciary responsibilities of the directors making the decisions on pay.

What’s next – what does ACCA want to see?

If it can be done with flexibility, giving the shareholders the right to approve company plans on pay would be a logical extension of their ownership role and could prove to be a positive force for pay discipline. Vince Cable’s proposals can be a positive development, provided the legal detail is right. Clarity is needed about exactly what matters are subject to shareholder approval. From here the Government needs to promote a responsible and long-term approach to corporate stewardship.

This was posted in Bdaily's Members' News section by Tom Keighley .