Image: Co-operative Group Image: Co-operative Group

The Co-operative Group boss' decision to take a huge pay cut has been described as "refreshing" and a "lesson for other businesses" by the Institute of Directors (IoD).

On Wednesday, Richard Pennycook decided to cut his £1.25 million basic salary to £750,000 and also reduce his bonus package because he felt his job was easier now that the Co-op Group is in "calmer waters".

Simon Walker, director general of the IoD, said: "The Co-operative Group has had a very difficult couple of years, culminating in a radical restructuring of the business. During this time Mr Pennycook has had to work hard to get the Co-op back on track. His pay reflected this additional work. Now this his finished, he has taken it upon himself to ensure that his salary reflects the work that will be required of him going forward. This is refreshing and should be seen as a lesson for other businesses.

"The IoD has said repeatedly that a CEO's pay should be transparent and linked to performance. The proactive steps taken today by Mr Pennycook and the Co-op's board should be a wake-up call to other companies. Being open, honest and transparent about the salaries of senior executives can go a long way to restoring public trust in British businesses.

"It remains the case that, for shareholders, the salaries of some CEOs seem unjustified. As we enter AGM season, I hope that today's news acts as an example for boards to reflect on the level of CEO pay, and that steps are taken to adjust salaries and bonuses when performance disappoints, or the role, scope or responsibilities of the job change. This isn’t just good corporate governance, it also makes good business sense."