Boardroom (3)

Much has been said in the press lately about the pay packets of board executives and given the uproar, you could take a wild guess that they wish it could have been kept under wraps.

The chief executive and chairman of Centrica and the chief executive of BP were recently criticised publicly over excessive pay and bonuses, despite poor results and returns for shareholders.

Of course, when you’re talking millions, many would say they just have to take it on the chin, but it does beg the question, should a board director reveal their pay?

The argument for high – some would argue extortionate – board pay is that it attracts top talent, incentivises performance and drives innovation and growth.

And that’s all very well when an organisation is succeeding and/or is profitable, but what happens when it is underperforming or worse still, failing?

The obvious downfall of making the package public is that unless you are on the board of a highly profitable company, people will question whether you are worth it.

Then we have to ask ‘how can a board director categorically prove they are worth their remuneration?’.There are so many variables to take into account, such as the sector and political climate the organisation is operating in, as well as what has gone on before the executive even joined the board.

Should we demonise a talented chief executive on a considerable pay packet, who needs time to turn a failing company around? Should they not be rewarded for their talent, hard work and tenacity?

In the financial sector, the banks reasoned that they needed talent and experience to pull them from the brink and if they didn’t pay for this talent it would have gone elsewhere.

Also, turning a company around can be a slow process and if an executive is delivering on cutting costs and restructuring for greater productivity and efficiency, then they should still receive a bonus.

The trouble is that if an executive’s pay package and bonus are public property, they are putting themselves forward to be vilified at annual shareholders meetings and in the press – like we’ve just seen.

However, the top and bottom of it is this – it is more than reasonable for shareholders and the public to expect accountability and transparency.

In the public sector, remuneration has always been available in annual reports; it is therefore open for scrutiny and interpretation but, even in the private sector, it is simply best practice to reveal pay.

The remuneration of NEDs is required in public sector for the annual report and for executive directors, although the absolute salary is not published, the salary band is.

While there are no hard and fast rules for the private sector, organisations must always bear in mind that accountability and transparency are key to building trust in an organisation. Whether or not the stakeholder or the public agree with the amount board executives are being paid, being upfront can go a long way toward inspiring confidence in a company’s integrity.

Two of Nolan’s seven principles, which are the basis of the ethical standards expected of public office holders, include accountability (holders of public office are accountable to the public for their decisions and actions and must submit themselves to the scrutiny necessary to ensure this) and openness (they should also act and take decisions in an open and transparent manner; information should not be withheld from the public unless there are clear and lawful reasons for doing so).

Whatever the sector – public, private, social, charity or voluntary – there are good principles to abide by, particularly when it comes to the issue of pay.

It would be my guess that the vast majority of board executives could and would argue they work incredibly hard for their money, despite the pressures they are under and the challenges they face.

If this is the case, then there is no reason at all they should not be transparent and reveal their pay.

 

By Matthew Roberts, CEO at NonExecutiveDirectors.com