How do we rebuild shareholder trust on executive pay

Choppy waters
It is clear from the previous articles in this
publication that remuneration committees are
facing a lot of work in 2010 and beyond. Figure
15 shows a proposed 2010 work cycle for most
remuneration committees.
When working through the cycle, although
committees are likely to encounter some unique
company-specific issues, they will almost certainly
need to consider the following common challenges,
related to the segments.
1. Adapt your approach to reflect the
regulatory changes
For those companies within the financial services
sector, the road map is a bit clearer – the APRA
Prudential Standard covers a whole range of items
for the remuneration committee to consider during
2010 and beyond.
For those in other sectors, remuneration committees
need to review their internal and external
environment and consider how <strong>we</strong>ll their approach
to remuneration is aligned.
At first glance this might appear to be a simple
exercise that could be dealt with via a simple
compliance checklist. <strong>How</strong>ever, those who have
attempted it in practice have found that it is much
more complicated, with many different views being
voiced. Serious issues are raised that require
consideration by the remuneration committee at
subsequent meetings. Comprehensive planning of
the committee’s annual work program will therefore
be essential.
2. Rethink the way the remuneration committee
discharges its duties
The remuneration committee’s remit is being
extended and the way in which it discharges its
responsibilities is also changing. In reviewing how it
discharges its duties, the remuneration committee
will face some challenging issues.
For example, how will the committee deal with the
oversight of all incentive arrangements within the
company? At what point will it engage external
advisers? <strong>How</strong> will it ensure risk is appropriately
balanced and the duties appropriately discharged
bet<strong>we</strong>en the risk and remuneration committees?
<strong>How</strong> will it deal with two consecutive high
<strong>shareholder</strong> votes against the remuneration report?
Figure 15: 2010 remuneration committees’ work cycle
7
Evaluate
remuneration
committee
performance
Adapt your
approach to
reflect regulatory
changes
Ongoing <strong>shareholder</strong> consultation • Governance • Trend
1
assessment
6
Get <strong>shareholder</strong>
communication
right
Remuneration
committee
cycle
Rethink the way
the remuneration
committee
discharges
its duties
2
5
Incentive award
determination
– pay for
performance?
Annual performance
and pay review
– freeze or unfreeze?
Set performance
targets that make pay
and performance
alignment
a reality
3
4
PricewaterhouseCoopers Executive Remuneration – Fourth Edition 2010 | 37