Ethical Performance
inside intelligence for responsible business


Better disclosure improves link between pay and performance

December 2015

More than a quarter of Britain’s biggest companies are reported to be hiding the criteria by which they award bonuses to their senior executives.

Disclosure is required under rules introduced two years ago, but the 28% of FTSE 100 companies that withhold explanations or give only limited reasons for pay-outs claim such transparency would risk revealing commercially sensitive information – a built-in exemption.

The findings appear in a report, Sunlight is the best disinfectant, published by PricewaterhouseCoopers (PwC), the world’s largest professional services network, headquartered in New York.

The PwC survey showed only 36% of FTSE 100 companies offered full disclosure of their 2014 pay-performance links, 24% published a single “on-target” bonus indicator, and 12% described their criteria without giving numbers.

By contrast, PwC partner Fiona Camenzuli wrote in the report that the past two years’ data showed businesses giving the fullest information were the best at relating bonuses to profit growth.

She said: “Our research suggests that the discipline of better disclosure of how bonus targets are set and met is significantly improving the link between pay and performance.

“The link … is twice as high in the FTSE 100 companies that provide full target disclosure [as] in those that don’t.”

Camenzuli forecast, however, that investors would inevitably and eventually force companies into full disclosures.

Sarah Wilson, chief executive of Manifest, an Essex-based consultancy advising shareholders on business issues, including boardroom pay, commented: “Commercial sensitivity [as an excuse] does not hold when it is the previous year’s performance you are reporting on.”

Despite the evidence, Suzannah Crookes, a remuneration specialist at the City of London law firm Pinsent Masons, said the report suggested the new regime had achieved change.

She said: “From a political perspective, that will be a relief for companies and investors, given the social and media sensitivities around high executive pay and the general wish of business to limit new regulation.

“The improved alignment of pay with performance also indicates that institutional investors have made effective use of the 2013 reforms.”

Further information:

PricewaterhouseCoopers | UK & NI Ireland | Remuneration

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