Monday 9 March 2009

UK: a code of ethics for remuneration consultants?

A few days after Lord Myners' comments in the House of Lords concerning remuneration consultants, yesterday's Sunday Times newspaper reported that the Association of British Insurers is calling for remuneration consultants to be subject to a code of ethics. In the report, the ABI's assistant director of investment affairs, Marc Jobling, is quoted:

“Pay consultants are a big contributor to the problems around executive pay. We have heard of some who admit they work for both management and independent directors — which is a clear conflict of interest and not acceptable. We believe that remuneration consultants, whose livelihood appears to depend on pushing an ever-upward spiral in executive pay, should be obliged to develop a code of ethics.”

The role of the directors on the remuneration committee should not, of course, be overlooked. In this regard the Combined Code supporting principle B.1 explains:

The remuneration committee should judge where to position their company relative to other companies. But they should use such comparisons with caution, in view of the risk of an upward ratchet of remuneration levels with no corresponding improvement in performance. They should also be sensitive to pay and employment conditions elsewhere in the group, especially when determining annual salary increases".

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