Report Leadership - executive remuneration
Few topics in the field of corporate reporting generate as much interest and debate as executive remuneration. In this publication the group provide practical ideas for improving the communication of executive reward by focusing on better disclosure and presentation of key information and the adaptation of emerging best practice. Our aim is to make this reporting area more understandable to users, not to influence the way executive reward is structured.
Based on an iterative process of investor consultation and built on existing company best practice, representatives from CIMA, PricewaterhouseCoopers LLP and Radley Yeldar have developed some ideas to enhance how companies present this sensitive information.
According to the group, fundamental to good reporting of executive remuneration is an explanation of how the executive remuneration committee has spent its time during the year, how it has arrived at its decisions and most importantly, how it is continuing to refine the alignment of executives' interests with those of shareholders. To bring these ideas alive, the group demonstrated how these elements of reporting could be applied in an executive remuneration report for fictitious company 'Generico'.
The report includes a suggested outline of the critical elements that investors indicated need to be present:
- A clear articulation of the overall reward policy and the principles and purpose behind each element of pay
- A prominent display of the main elements of pay and how they are calculated
- An explanation of how the company's strategic aims are reflected in the reward incentives that drive executives' behaviour
- An understanding of the key decision during the year that challenged the remuneration committee and how it was addressed.
Crucially, investors also need to understand how underperformance will affect executives' rewards and the potential downsides for executives, and where appropriate, comparison with practice across a relevant peer group.
