Law changes advocated to reduce top pay controversy

June 12, 2012 - PRLog -- Three changes in company law have been advocated to reduce the contentiousness of top executives’ pay such as that earned by WPP’s founder and chief executive Sir Martin Sorrell.

Writing in "Marketing Services Financial Intelligence" a former technical director of the Institute of Chartered Accountants, Bob Willott, suggests that confidence between shareholders and public companies would be improved if:
•   The remuneration committee were to be underpinned by a statutory requirement for up to one half of its members to be nominated directly by major shareholders and for the remainder to be nominated by the board of the company.
•   The company’s annual report were to specify the total remuneration earned, or estimated to have been earned, in a financial year by each executive director and its composition (including share awards, cash bonuses and benefits in kind) irrespective of when it may be paid.  At present share awards are disclosed separately and are not easily related to the year in which they have been earned.
•   The annual report were to state the maximum and minimum remuneration (including the value of potential share awards) that could be earned by the chief executive in respect of the year ahead.

Willott is a former technical director of the Institute of Chartered Accountants in England and Wales.

“Perhaps some of the outcry about Sir Martin’s remuneration would have been ameliorated if WPP’s annual report had given a clearer picture of how much each director had earned in the period, as distinct from what was paid”, Willott said, noting that £7.6 million of Sir Martin Sorrell’s 2011 remuneration had actually been earned in previous years.

“The company may retort that this is too difficult because some rewards – particularly some of those satisfied in shares - are dependant on achieving performance targets that straddle more than one year”, Willott acknowledged.  “Even so, it should be possible to provide an estimate or to indicate the maximum and minimum reward that would accrue for any year.  

Willott recognised that there was no shortage of information required by law or provided by WPP, but argued that a lot could be done to simplify its communication: “While no reasonable person could complain about the amount of information that WPP provides, it is the distillation of that information into simple meaningful numbers that is missing”, he said.