Position Paper: Remunerating Executives for Shareholder Value

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Executive Summary

A commercial, evidence-based approach sees executive remuneration as one among many components of talent management. The most important consideration when formulating and evaluating a remuneration plan should be how well it fits its purpose. In practice, this is likely to mean pay arrangements can and should differ according to organisational circumstances and the specific requirements of the role.

A common approach -  causing pay to vary with shareholder returns - is based on fallacies about attribution of performance, alignment of interests, and the psychology of incentives. In many cases this will not only be ineffective, but counterproductive for shareholders.

Restraint, simplicity and transparency are key to ensuring the acceptability of remuneration arrangements to long term investors. We encourage companies to discuss remuneration matters of interest or concern with investors  well before a remuneration plan is finalised.

Regnan believes informed and empowered board members are best placed to determine appropriate executive remuneration arrangements. We therefore  provide no prescription, but provide context and general guidelines on what we consider necessary inputs for determining such arrangements.