High Pay Commission member says more information on how profits are used will produce a better debate on top pay
Companies should be forced to spell out in simple form how they use their profits, stating how much is invested back into the businesses, how much is paid in dividends to shareholders and how much is handed to staff to help investors gauge whether bonuses can be justified.
Under the proposal being developed by Robert Talbut, chief investment officer of Royal London Asset Management, companies should be required to publish three years of such information in their annual report and accounts.
A member of the independent High Pay Commission, Talbut said: "Far too much of the debate over remuneration takes place in isolation with little relation to the context of the company and its strategy."
He hopes his idea will allow a more sophisticated debate to take place about the ability of each individual company to pay out bonuses, dividends and invest in their businesses ? particularly at a time when some companies are adding to the complexity of their bonus schemes.
Talbut's idea for a "distribution schedule" of how profits are used is intended to make it easier for shareholders to discuss company strategy with management teams. "The distribution schedule could over time become a central focus for how shareholders engage with management and clearly establish the linkage between strategy, investment, risk and remuneration," he said.
"For each company we could see how profits earned by the business have been used, firstly through the amount of investment in the business that has been undertaken; secondly the amount of dividends that have been paid to the shareholders; and then lastly how much was paid to both all staff but then also to the executive team."
He added: "This information clearly presented would allow for a much higher quality discussion surrounding how these decisions were made and the merits of the various stakeholder claims".
Banks have become the focus of much of the debate about bonuses not only because of the size of the payouts but also because the sector has been bailed out by the taxpayer, either through direct injections of cash used to buy shares or indirectly through injections of liquidity into the financial system. Shareholders have faced criticism for being more concerned about the technicalities of how pay deals are devised than the actual amounts.
The High Pay Commission intends to publish a report on May 16. A spokesperson said: "This is an interesting idea but we have not reached any conclusions before [publishing] our policy ideas later this month."
Source: http://www.guardian.co.uk/business/2011/may/01/companies-told-show-bonus-investment-split
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