Do the Benefits of the Current UK Regulatory/Compliance Regime Regarding Remuneration Committees’ Determination of Executive Pay and its Disclosure Justify the Obligations Imposed?

This paper examines the applicable regulatory/compliance regime concerning RCs’ determination of executive pay and its disclosure. It hypothesises that although the results of UK regulation have been very beneficial overall (i.e., the benefits do indeed justify the obligations imposed), particular UK corporate governance failures regarding executive pay have arisen due to the combination of the applicable regulatory regime with other factors. It finds that in respect of accountability and transparency very considerable progress has been made; however, regarding the pay-performance linkage in particular much remains to be done concerning ‘rewards for failure’, the need for a longer-term time horizon and LTI design generally. Although this paper concludes that its hypothesis is correct, six recommendations are made for future improvement regarding (i) regulation, (ii) institutional shareholders, (iii) remuneration committees, (iv) remuneration committee advisors/in-house executive compensation HR specialists, (v) remuneration package design, and (vi) corporate ethics/behaviour. The goal of improvement is well worth striving for because corporate governance failure on executive pay harms the concept of responsible capitalism and the success of companies on which UK jobs and taxes depend.