Tighter Governance Requirements – Digressing From Good To Ridiculous?
05/02/2007
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The two most influential British governance organisations are the National Association of Pension Funds (NAPF) and the Association of British Insurers (ABI). Late last year the ABI released new remuneration governance guidelines. Some aspects of the guidelines do little to enhance their credibility, and may encourage more of its members to independently develop their own, divergent, guidelines. It may be wise for Australian governance groups to take heed.

Included in the ABI’s new guidelines is a requirement that companies provide justification if executive director base pay is positioned “at median or above”. This guideline seems to encourage companies to pay below the median in order to avoid the need to justify pay. But wouldn’t shareholders be equally concerned if their CEO was paid below median, given the risk to shareholder value of executive turnover?

If all companies’ policies were to pay below median, then executive pay would spiral downwards. At that rate, and if applied to Australia, we reckon average weekly earnings to be double CEO pay by about the year 2032.

© Guerdon Associates 2021
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