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16/09/2003
CBI calls for 'transparency' in director earnings
In its response to a DTI consultation on termination payments for company directors, the CBI said that it is "unequivocally against rewards for failure" and has called for the disclosure of contractual terms and conditions, one-year rolling contracts, part-payment in shares and regular contractual reviews.
The CBI believes their response will provide a "flexible and transparent framework" primarily for FTSE 100 companies. The response outlines ways of handling the different elements of severance packages - basic pay, earned bonus and pensions – and includes six key principles which could be used by companies as a benchmark for all executive director contracts.
CBI Director-General Digby Jones said: "There have been a small number of well-publicised cases where severance arrangements have given the wrong signals. It is vital that the business community works hard in every way at polishing its reputation with the wider community.
"The standing of business is at stake and must be tackled but in a way that ensures world-class companies can attract top international business people and retain and nurture home grown talent.
"Britain needs the best people to want to serve on the boards of listed companies, not be driven to the unpublicised world of subsidiary companies or private equity. The flexibility to compete for and secure the best talent available is vital to the future success of UK business."
Among the CBI proposals are calls for details of directors' contracts to be made available "at the earliest opportunity", so shareholders know exactly what commitments have been made.
Severance terms should be similarly announced and these entitlements restricted to basic pay, earned bonus and pensions accrual only in line with pay, the CBI says. Any attempt to enhance pension payments outside contracted entitlement should require specific shareholder approval.
Mr Jones added: "These guidelines for remuneration committees and others provide a golden opportunity to deepen that involvement and ensure it is sustained in the longer term."
George Cox, Director General of the Institute of Directors, welcomed the CBI's paper and said his organisation was "very much in accord with the thinking behind the proposals".
(gmcg)
The CBI believes their response will provide a "flexible and transparent framework" primarily for FTSE 100 companies. The response outlines ways of handling the different elements of severance packages - basic pay, earned bonus and pensions – and includes six key principles which could be used by companies as a benchmark for all executive director contracts.
CBI Director-General Digby Jones said: "There have been a small number of well-publicised cases where severance arrangements have given the wrong signals. It is vital that the business community works hard in every way at polishing its reputation with the wider community.
"The standing of business is at stake and must be tackled but in a way that ensures world-class companies can attract top international business people and retain and nurture home grown talent.
"Britain needs the best people to want to serve on the boards of listed companies, not be driven to the unpublicised world of subsidiary companies or private equity. The flexibility to compete for and secure the best talent available is vital to the future success of UK business."
Among the CBI proposals are calls for details of directors' contracts to be made available "at the earliest opportunity", so shareholders know exactly what commitments have been made.
Severance terms should be similarly announced and these entitlements restricted to basic pay, earned bonus and pensions accrual only in line with pay, the CBI says. Any attempt to enhance pension payments outside contracted entitlement should require specific shareholder approval.
Mr Jones added: "These guidelines for remuneration committees and others provide a golden opportunity to deepen that involvement and ensure it is sustained in the longer term."
George Cox, Director General of the Institute of Directors, welcomed the CBI's paper and said his organisation was "very much in accord with the thinking behind the proposals".
(gmcg)
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