By Maximilian Clarke

Executive pay must be tied to performance, with no more rewards for failure, the Confederation of British Industry (CBI) has said.

Executive pay levels have become a highly divisive issue, particularly in light of cuts to public sector pay and pensions and rock bottom wages for private sector workers.

A study by the Institute of Directors concluded that the astronomical growth of executive pay undermined the legitimacy of UK business, whilst protest against ‘corporate greed’ across the western world continue to grow in popularity.

But by better linking pay to performance, the current system of corporate governance could be strengthened, observes the CBI’s Katya Hall.

Among the measures the CBI is calling for are: greater transparency on the criteria used to set rewards; executive pay to be considered as part of a broader organisation-wide pay strategy; and withholding performance-related pay in cases of poor performance.

“High pay is only ever justified by outstanding performance,” said Hall.

“The current system of corporate governance is a robust mechanism for setting executive pay when it’s applied consistently and effectively, and there are ways it could be strengthened further.

“Remuneration committees have a critical role to play in ensuring that pay is always squarely linked to performance.

“We believe remuneration committees should be bolstered by widening the pool of non-executive directors who serve on them and giving them greater scope to reduce or withhold rewards in cases of poor performance.”

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