6 Oct 2016 09:11am

Career clinic: defending executive remuneration

Mark Freebairn puts himself in the firing line this month and sets about defending executive remuneration

Caption: Mark Freebairn sets about defending executive remuneration

Remuneration is about to become a hot topic again. I know I have written about this before but I believe someone needs to make the case for business people.

Let me be clear – some people get paid obscene amounts and in some cases, it does not seem justified. But this is not limited to board directors. Lawyers, musicians, actors, authors, artists, Big Four partners, fund managers, dare I say some headhunters – all of these and hundreds more get paid as much, or more, than a PLC chief executive.

But there is no regulation enforcing the disclosure of that information to the wider public so no-one seems to care about that. The focus is on those whose remuneration is disclosed each year in an ever-lengthening part of the annual report.

For some, remuneration is simply a quantum issue – X is too much. For others it relates to specifics – reward for failure, for example. But this is a corporate pre-nup. When disaster happens, the mechanics put in place by contract lawyers take over, the calculation is done and the payment made.

And this is where I have a problem with the media. Everyone understands that if you hit the objective you get paid the bonus. Everyone understands that if a share price goes up your share awards pay out. But when the number reaches a quantum the moral compass thinks is too high, the criticism begins.

Of course in some instances criticism is fair. It would be great if some individuals turned around and said, “only pay me half”. But I suspect this could get worse over the next nine months. Brexit has caused a rapid shift in currency valuations.

This has had an immediate impact on share prices – many have increased substantially and several have plunged. At the end of this business year some companies will shoot the lights out of their short- and long-term objectives as a result, and some will miss by a mile.

You could argue in either case that the management teams had nothing to do with the Brexit outcome and therefore have unfairly benefited or been penalised as a result.

The numbers will be big. RemCo chairs will need to manage this if they are not already. Shareholders should engage to resolve it. We will find out if the process works and if the press will report it fairly or dramatically. Don’t hold your breath…

Mark Freebairn is a partner at Odgers Berndston


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