By Maximilian Clarke

Current levels of executive pay are unsustainable and threaten to further undermine the legitimacy of UK businesses, a leading business organisation has said.

Commenting in response to the Department for Business’s consultation on executive remuneration, the Institute of Directors’ Director General, Simon Walker, said:

“The IoD has noted, with growing concern, the rapid rise in executive remuneration at the largest listed UK companies over the last 10-15 years. We are aware of the difficult challenges faced by remuneration committees in responding to a global market for executive talent. But the current pace of increase in executive pay is unsustainable. The legitimacy of UK business in the eyes of wider society is significantly damaged by pay packages that are not clearly linked to company performance.”

In order to curtail the excesses, the Institute have made a number of recommendations, including:
- The introduction of a binding shareholder vote on executive remuneration policy;
- Engagement of remuneration committees, on a voluntary basis, with employee representatives as part of the remuneration setting process;
- And greater transparency regarding the potential conflicts of interest experienced by remuneration consultants.

“A higher level of professional diversity amongst independent non-executive directors will assist boards in aligning executive pay with society’s expectations,” continued Walker. “Shareholders should also play a more active oversight role.

“Remuneration committees should explore ways of engaging with employees on remuneration policy. This will be important in increasing the legitimacy of executive remuneration in the eyes of wider society.”

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