Fidelio’s purpose is building Boards and leadership teams that are aligned to value – value for shareholders and value for stakeholders.
Remuneration is clearly a lever for driving value and indeed for most people also an indicator of value.
For all Boards, achieving and implementing an effective remuneration framework is a priority. For Boards in Europe and the UK in particular, there are layers of sensitivity to be considered in building alignment on pay.
While higher levels of shareholder protest were expected during this year’s AGM season, there were some high-profile negative votes with nearly 60% of votes at one FTSE 100 company cast against its remuneration plan.
More generally pressures on Boards have converged to cast a spotlight on remuneration and how Boards have deliberated including:
Faltering share price performance
The impacts of inflation and the cost-of-living crisis
Increased ESG expectations, in particular relating to climate change
And, in the case of the UK, the weakness of the London stock market
Against this backdrop, unsurprisingly, Fidelio has seen a particularly strong focus on remuneration in our recent Board assignments in both Evaluation and Search. Four major themes stand out:
Cost-of-living crisis – again particularly in a UK context the stubbornness of inflation has raised the spectre of a cost-of-living crisis for many in society, including employees. Fidelio has certainly seen Boards take a comprehensive interest in the impact of inflation across the workforce and also the initiatives that management are implementing to cushion employees from the most devastating consequences. Many Boards Members are sharing insights from other companies and supporting management in finding solutions that are meaningful, affordable and don’t stoke further inflation. Indeed, the consultation for an updated Corporate Governance Code sets out an expectation that the Remuneration Committee should review workforce remuneration and related policies, and should also take account of workforce pay when establishing senior Executive remuneration.
CEO retention – once again, in particular in the UK market, Fidelio is seeing Boards maintain a close focus on retaining highly effective CEOs. There is a real concern that CEOs who have experience of working in the US or are on the radar screen of US competitors could be attracted by the offer of a very substantial package that may not be acceptable to UK / European shareholders. Boards are also concerned about losing talent to Private Equity.
Pay gaps – with greater monitoring of compensation across the organisation, there is also increased scrutiny of structural inequalities. Most attention has focused on the gender pay gap but there are also ethnicity pay gaps and of course the span between the highest and lowest paid. Fidelio has found Boards to be committed to implementing a fair and attractive compensation structure and much attention is currently being paid as to how best to achieve this. There is seldom a silver bullet, change can be frustratingly slow and communicating ambition and explaining progress are key.
Implementing ESG – whatever the acronym companies and investors use, Fidelio sees across our clients a commitment to align compensation to delivering value for both shareholders and stakeholders. This typically involves heavy lifting on the materiality of ESG priorities for the business and very clear thinking about the right targets and KPIs. Most Boards and Remuneration Committees see this as work in progress, but it is undoubtedly critically important if management, shareholders and stakeholders are to be well aligned in their understanding of the strategic direction of the company.
Given the importance of remuneration, and the scrutiny that Boards are under in their deliberations, Fidelio has recently conducted research and also hosted a Roundtable of Chairs and Remuneration Committee Chairs. This complements our insights from regularly advising and supporting our clients and we are pleased to share our findings in this Overture.
To continue reading Fidelio's Overture 'Spotlight on Remuneration', click here.
The Remuneration Committee Chair role is pivotal in the Board’s role of overseeing the sustainable growth of the company. Fidelio’s work with clients, as well as our research and the recent Remuneration Committee Roundtable, indicate that there is no one size fits all approach to remuneration. But there is a recognition that a great deal of engagement and heavy lifting needs to take place if alignment is to be achieved and the focus on growth maintained.
Fidelio’s focus is building Board capability to drive value in a fast-changing world – through Evaluation, Development and Search. We are pleased to support Chairs and Remuneration Committee Chairs in aligning the Board and leadership team to value.
To learn more about how Fidelio can support your Board, please do get in touch.