Remuneration Principles: Clarifying Expectations is a new report from Hermes about CEO Pay.
They note that CEO pay is uniquely disconnected from the principles and structure of every other kind of compensation and offer guidelines for investor priorities in reviewing pay proposals.
Given the deep concerns of stakeholders over executive pay in many
jurisdictions, it is in the interests of companies and investors to resolve the
tensions. To do so requires all parties to engage constructively and be willing
to make demonstrable change. To date, public policy has put responsibility
firmly on investors to regulate and control executive remuneration and this
looks set to continue, following proposals to introduce a binding say-on-pay
for annual pay awards. We, within the investment management industry,
therefore must recognise our responsibility to engage with companies
effectively as interested owners and, where necessary, use our shareholder
rights collectively and consistently.
Our Remuneration Principles
1 Shareholding: Executive management should make a material long-term investment in the company’s shares
2 Alignment: Pay should be aligned to long-term success and the desired corporate culture
3 Simplicity: Pay schemes should be clear and understandable for both investors and executives
4 Accountability: Remuneration committees should use discretion to ensure that awards properly reflect business performance
5 Stewardship: Companies and investors should regularly discuss strategy, long-term performance and the link to executive remuneration