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Enough ABI pay guidelines – now dare to vote

The ABI has been issuing pay guidelines since the 1970s – how to show they really mean it? The plan to give Martin Sorrell a 50% rise might be a good place to start

The Association of British Insurers is promising to get tough on boardroom pay. Yes, again. The trade body for big fund management houses has been publishing its “guidance for remuneration committees” since the 1970s and every revision tends to be accompanied by hopeful thoughts that this time the would-be policeman of executive pay has got wise to the latest tricks.

So it is today. The ABI wants to nail several recent perceived abuses. It wants pay committees to think about the “quantum” of pay, meaning the sheer size of rewards; it wants them to consider cancelling annual bonuses if a company has suffered an “exceptional negative event”; and it wants to see “malus,” or clawback, clauses in contracts to stem the continuing flow of rewards for failure.

Jolly good, but, as ever with the ABI, we have to ask whether the members intend to enforce these principles.

Take the clawback idea. This is enshrined already for banks, and Lloyds Banking Group has provided an excellent example of how it could be applied in practice. Eric Daniels departed as chief executive this year with a £1.45m bonus, just weeks before his successor revealed a £3.2bn provision to compensate customers who were mis-sold payment protection insurance over several years. The sum is so large that it will scratch a huge scar across Lloyds’ profit and loss account this year. But where was the outcry from leading lights of the ABI? Where was the demand that Daniels should return his bonus? Silence reigned.

To be scrupulously fair to top folk in fund management, there have been counter-examples. Tony Ball’s absurdly over-the-top expectation for what he should earn as boss of ITV met stiff resistance and the appointment was blocked. But, in general, big shareholders, preaching a gospel of “performance-related pay,” have been too ready to swallow companies’ own definitions of good performance. That is one reason why the FTSE 100 index stands at 1998′s value while boardroom rewards most certainly do not.

Still, armed with their new guidelines, ABI members have a chance to demonstrate their new resolve. Advertising group WPP wants to give its chief executive, Sir Martin Sorrell, a 50% rise to £1.5m in his basic salary. Does that fail the new “quantum” test? A common-sense reading of the new guidelines says it should. © 2011 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds