The Financial Reporting Council (FRC) has published a second Financial Reporting Lab (Lab) report on remuneration, examining how investors and companies think details of executive pay and performance should be shown in company reports.
The Reporting of pay and performance project was carried out at the request of the Department of Business Innovation and Skills (BIS) and looked at two new aspects of the draft reporting regulations on remuneration.
These were the use of scenario charts demonstrating how directors' pay varies with performance, and the inclusion of a chart comparing CEO pay based on the single figure for remuneration, with company performance, measured using Total Shareholder Return (TSR).
The report says participants wanted to see simplified versions of the scenario charts proposed by BIS, with the use of three bar charts setting out remuneration payable when performance meets, exceeds and falls below the threshold target.
Participants also rejected the BIS proposal for a 'future policy table', which sets out the company's forward-looking policy on remuneration, as in their view the scenario charts are not expected to provide a prediction of the future remuneration of an executive director.
BIS's original proposals included a graph comparing CEO pay (measured using the single figure of remuneration) with company performance (measured using TSR). This would replace the current requirement to publish a graph showing the company's TSR over the previous five years alongside the TSR for a peer group of companies. The proposal required CEO pay (in £) to be plotted against a one year TSR (as a percentage) over a 10 year period.
The Lab report found investors favoured keeping the existing TSR graph, and supplementing this with a table of historic data, providing CEO pay, as well as the annual variable element award rates and the long-term incentive vesting rates against maximum opportunity.
The report comes amid growing shareholder criticism over executive remuneration. The Local Authority Pension Fund Forum (LAPFF), which owns around 2% of the shares in AstraZeneca, has advised its members to reject the company's pay report at its AGM on 25 April.
The Forum is protesting against the pharmaceutical company's decision to give its new chief executive, Pascal Soriot, a one-off 'golden hello' payout of £991,080 to compensate him for the loss of his bonus at his previous employer. Soriot's overall pay package at his new company is worth up to £11m.
Kieran Quinn, Forum chair, said: 'LAPFF has a pretty straightforward view on golden hellos - we don't think executives should be paid for performance they have not actually achieved.'
