How and what to pay – the ABI's view

As part of its greater public assertiveness, the Association of British Insurers has decided it's time to make noise about executive pay. But it focuses not on the level of pay as such, but rather on the processes through which companies reward top management. The ABI, a trade association representing organisations that are both companies and investors, thinks shareholders have a role to play in the process, alongside boards and board remuneration committees. Moreover, policies and pay structures could do with some fresh ideas.

• Role of shareholders: As shareholders, insurance companies generally look after the long-term interests of their beneficiaries. They don't want to micro-manage companies, but they do want remuneration practices and policies of companies they invest in to be aligned with shareholder interests.
• Role of the board and directors: Non-executive directors, particularly those serving on the remuneration committee, should oversee executive remuneration.
• Remuneration Committee: Shareholders want remuneration committees to protect and promote their interests. Pay structures should be aligned with strategy and agreed risk appetite, reward success fairly and avoid paying more than is necessary. "Remuneration Committees should look at executive remuneration in terms of the pay policy of the company as a whole, pay and conditions elsewhere in the Group, and the overall cost to shareholders," it states.
• Remuneration policies: Pay should promote value creation through transparent alignment with the agreed corporate strategy. "Excessive or undeserved remuneration undermines the efficient operation of the company, adversely affects its reputation and is not aligned with shareholder interests," it says.
• Remuneration structures: The ABI wants the board as a whole to consider the aggregate impact of employee remuneration on the finances of the company, its investment and capital needs, and dividends to shareholders. "To avoid payment for failure and promote a long-term focus, remuneration structures should contain a careful balance of fixed and variable pay," it said. "They should include a high degree of deferral and measurement of performance over the long-term." It wants claw-back clauses, too.

If this summary sounds pretty much the same as you've always heard, you would be right. There's nothing radical here, no call for a clampdown, not quantitative limits and only a few echoes of the idea of setting top pay in relation to the median level in the company. The ABI doesn't do radicalism very much. That it is doing this at all is an indication of the steam building up in society about doing something, and maybe something serious.

Source document: The ABI remuneration guide gives further details.