Walker review on bonuses and risk-taking attacked by Institute of Directors

It will reject as too prescriptive Sir David’s proposal that at least half of annual bonuses for executives should be staged over a minimum of three years, and should include a significant long-term incentive scheme.

However, the IoD will support deferred bonus plans and the right of companies to claw back payments in schemes where the payout is variable. Miles Templeman, the IoD’s director-general, will argue that the Walker review’s recommendation that financial institutions establish risk committees should also be confined to the financial sector and that it suits only large institutions.

As well as acting as a direct riposte to the Walker review, Mr Templeman’s comments are aimed at the Financial Reporting Council (FRC) — the body that oversees the combined code guidelines on good governance.

The FRC is undertaking the most fundamental review of the code in more than five years and some observers fear that Sir David’s findings could be used as a template for reform across all quoted companies.

“To its credit, the Walker review recognises the value of the flexible UK approach to corporate governance and has rejected the adoption of a heavily regulated regime,” Mr Templeman will say.

“However, it is important for the FRC to think carefully about the applicability of the Walker review’s recommendations to the combined code. Many of the proposals would not represent best practice for nonfinancial companies.”

Any additional safeguards that are imposed on the financial sector should be dealt with by the Financial Services Authority, the City regulator, and not be included in the revised combined code, Mr Templeman will say.

The IoD represents the interests of more than 50,000 company directors in Britain.

In a 13-page letter to Sir David, written by Roger Barker, the IoD’s head of corporate governance, the institute will set out its response to all 39 recommendations contained in the Walker review, which was published in July. Despite Mr Barker’s reservations about some aspects of the review, he will throw his weight behind several landmark measures.

The IoD will back the annual re-election of all company chairmen and will support the idea that additional emphasis be placed on the role of independent directors. Weak policing of chief executives by chairmen and non-executives, particularly at Royal Bank of Scotland, was seen as instrumental in contributing to the demise of several British banks.

The heads of company remuneration committees, responsible for setting pay and bonus policies, should face a shareholder vote on their re-election if more than 25 per cent of voting shareholders oppose the remuneration report at the annual meeting, the IoD will say, in support of another Walker review measure.

It will also back Sir David’s call for a new code of governance for institutional investors — with a “comply or explain” policy similar to that in the combined code. This would encourage shareholders and boards to engage with each other, the institute will say.

  Share:

Leave a Reply

*