SETTING THE STYLE OF REMUNERATION POLICY

The principles affecting boardroom pay are generally the same as those described elsewhere in this book for all employees. What is different is the public visibility of pay decisions and the fact that salary policy for directors is usually an indication of corporate culture. Statements in many company annual reports confirm this, especially when an organization decides to change, and usually sharpen, rewards at the top. The press has always reacted badly to major pay hikes - playing on the politics of envy and the so-called 'fat cats' syndrome. More recently, major institutional shareholders have taken considerable interest in the link between executive rewards and corporate success and the press in the UK is alays prepared to make adverse comments on what are perceived to be excessive pay increases for boards, when increases for the rank and file have been kept at a minimum in times of low inflation.

The way in which boards of directors are paid tends to reflect the pay philosophy of the organization as a whole. Boards that have adopted and believe in the value of incentives, for instance, will push the concept of performance-related pay down through the whole organization. Those who choose to reinforce other values such as loyalty and commitment may place more emphasis on these - but they may, of course, offer performance rewards too.

Critical to the success of the remuneration policies for more junior staff is the level at which boardroom pay is set in relation to the competition. Boards, especially in family companies where remuneration does not come from basic salary alone, do not always appreciate that the level of their basic pay sets the ceiling below which all other salaries generally have to fit. Failing to recognize this or allowing for necessary exceptions can create 'headroom' problems, which have an impact on both recruitment and retention.

Also potentially damaging are salary levels which employees perceive as excessive in relation to their own rewards. High boardroom pay can and should be an outward sign of corporate achievement. But the taste can go sour if employees perceive that their pay is 'just a cost to be controlled' and that there is no potential share for them in the organization's success. It is no coincidence that many companies that have gone for generous bonus or incentive schemes or executive share options at the top have also opted to introduce performance-related pay further down, perhaps in addition to some form of all-employee profit sharing or share scheme. Such actions have not just tempered possible accusations of executive greed but have given everyone a potential share in success. They may also reassure shareholders that good and competitive remuneration practice has been introduced at all levels. It is, after all, in the interests of shareholders that the employees and the board are motivated to achieve the same goals and to deliver corporate success.