Simplified company reports could lead to more transparency on executive pay

Its consultation on corporate narrative reporting (53-page / 379KB PDF) will provide greater clarity on how businesses are run and how executive pay is matched to performance, Business Secretary Vince Cable claimed.

An additional discussion paper on executive pay (46-page / 512KB PDF) considers further options such as 'clawing back' bonuses and whether worker representation on pay committees would help to curb high pay where this does not correlate with company performance.

While acknowledging the importance of "well structured" executive remuneration as a means of rewarding directors and promoting corporate growth, Cable commented on the increasing "disconnect" between how the largest companies perform and executive pay.

"We have put a wide range of options up for discussion so we can decide on what is workable and end up in a place where remuneration is genuinely matched to performance and long term success," he said.

Rory Cray, an expert in employee incentives with Pinsent Masons, the law firm behind Out-Law.com, suggested that there were not many surprises in the areas that the Government was seeking comment on.  However, he added that the process by which executive pay in the UK is set is "already robust".

"This process is likely to be healthy for UK PLCs and will give the business community a chance to explain that the process for setting executive pay is already robust, and with serious and sensitive scrutiny applied by companies, their non-executives and by investors," he said.

The consultation proposes to simplify annual reporting requirements into two separate documents. A Strategic Report will provide information on financial results, the company's business model and strategy, risks, remuneration and environmental and social issues. The Annual Directors' Statement will provide more detailed information, and will be published online.

These simpler reports will increase transparency and accountability in the investment chain and enable shareholders to get a real picture of what is happening to their investments, the Government said.

Further proposals include requiring companies to provide information on the link between company performance and top executives' earnings. This could include requiring companies to provide commentary on the link between pay awarded in a particular year and the previously agreed performance measures.  .

The consultation also asks whether each director's total earnings including salary, bonuses, share schemes and pension arrangements should be published. It suggests publishing the ratio between the CEO's pay and the average earnings of that company's workers.

It also considers whether companies should have to publish the number of women who hold executive positions, in line with the recommendations from the Lord Davies report into women on boards.

The Government are seeking responses on both documents until 25 November 2011.