UK companies have an opportunity to learn from US counterparts on CEO pay ratios, according to a leading US compensation consultancy.
This comes since the introduction of new rules in the UK after similar rules were introduced in the US by the SEC last year.
Marc Hodak, a partner at US-based executive compensation consultancy Farient Advisors, tells IR Magazine: ‘Businesses in the UK have the opportunity to learn from US companies that have already disclosed their CEO pay ratios. Many used their disclosures to create a narrative that supported their mission, business model or strategy.
‘If a detailed explanation was not warranted, none was offered. Those who required more explanation got out in front of the issue and engaged their stakeholders prior to the disclosure.’
In addition, having hit the road with dozens of US firms in 2018, Hodak has this advice for UK companies:
– Use your disclosures to create the right narrative: Shareholders and corporate governance professionals will know only what you tell them about the calculations
– Strike the right balance: Determine how much narrative around the CEO pay ratio is appropriate. A detailed explanation is not required
– Understand when to tell the story: Rushing to develop a response to shareholder and proxy adviser inquiries can leave your CEO pay ratio – or worse, your say-on-pay situation – vulnerable.
Farient Advisors, which publishes the annual Global Trends in Corporate Governance report, highlights three critical areas of concern for global stakeholders: executive compensation, board structure & composition and shareholder rights.
In the report, Farient warns that the wider issue of corporate governance is not going away: ‘As capital continues to become more fungible across borders, as companies compete to attract more capital and as countries seek to make their markets a safe place in which to do business, governance will continue to advance globally.’
The report also notes the importance of shareholders in shaping the importance of the governance narrative. ‘Shareholders are becoming more adept and proactive at influencing governance change,’ it points out. ‘Shareholders have better data about global practices and have become more effective at promoting their interests through organizations such as the Council of Institutional Investors.’