Friday, December 9, 2011

UK High Pay Commission Proposes Changes In Exec Pay

The commission is concerned that executive pay is out of line with the compensation of other workers and often unrelated to performance. Compensation of FTSE top executives increased 43% last year and Director pay increased 47%. The commission's proposal is being made because UK executives are impervious to public concerns about executive compensation and there is risk that this can lead to opposition to capitalism itself.

The proposal consists of three requirements. Shareholders must approve top executive compensation each year. UK base workforce submits a non-binding secret ballot on the pay plan. The Annual Report prominently displays CEO compensation relative to compensation of the bottom decile in the UK. It also shows the percent change in the ratio compared to prior years.

This is a step in the right direction. I doubt that we will see anything like this in the US. UK executives who have business relationships with US firms tend to outpace their UK peers in compensation growth.

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