Focus: Executive salaries - The case for executive pay

Several firms have come under fire recently over pay levels for their top staff. Joe Lepper looks at how these firms could better communicate the reasons behind the pay packages.

Executive salaries: The case for executive pay
Executive salaries: The case for executive pay

Public outrage over the salaries and bonuses of UK firms' top executives has intensified since the economic downturn began four years ago.

Most recently firms such as RBS, easyJet and Network Rail have faced a barrage of criticism from the public, politicians and shareholders over remuneration packages.

RBS' in-house team has had a particularly rough introduction to 2012. Already this year former chief executive Fred Goodwin has been stripped of his knighthood and current chief executive Stephen Hester was forced to waive his £1m bonus following a media storm.

Meanwhile easyJet is embroiled in an embarrassing public spat with major shareholder Sir Stelios Haji-Ioannou over its remuneration package for top staff.

Money for nothing

One of the biggest problems such companies have faced has been to counter accusations they are rewarding failure.

Latest Institute for Public Policy Research (IPPR) analysis of FTSE 100 company accounts ending between December 2010 and March 2011 shows a clear gap between executive pay and a chief criteria of success - share value. Remuneration for chief executives over the period increased by 33 per cent while the average increase in company value was just 24 per cent.

Public and shareholder outcry has prompted the Government to intervene. In a package of measures outlined by Business Secretary Vince Cable last month, shareholders will be given a greater say on executive pay and bonuses. Companies will be required to claw back bonuses that are later shown to be unwarranted.

Firms, which under the 1986 Companies Act already publish remuneration packages in their annual reports, also need to be more transparent and justify the sums being offered.

In a recent PRWeek podcast, Porter Novelli corporate practice leader Neil Bayley said: 'You need to show why bonuses are deserved.' He said companies had a bigger job to do to explain the role these executives play, and why they deserve rewards.

PRWeek asked City and corporate PR experts how companies can improve their comms surrounding executive pay to three key groups: shareholders, staff and the wider public.

 

CONSUMER RELATIONS

There was a crushing sense of inevitability on 29 January when RBS' Hester announced he was going to waive his bonus of shares worth just under £1m.

Details of the payout by the bank, which is 81 per cent owned by UK taxpayers, began to emerge just three days before and were met with a vociferous response from the media and politicians. The Daily Mail's front page headline '£1m Reward For Failure' was typical of coverage.

Keeping quiet

But RBS' in-house PR team, which has declined to comment on its comms strategy, waited 24 hours before defending the bonus. In the short statement the bank argued the deal had been approved by shareholders and was in recognition of 'tangible achievement in the business'.

RBS was unable to convince the media the bonus was justified and Hester was faced with no alternative but to refuse it.

Insignia Communications founder Jonathan Hemus calls for all firms to carry out 'stakeholder mapping' around their executive pay awards to ensure they understand who will have the strongest grievance.

He says: 'Problems occur when there is a misalignment between the company's policy and stakeholder expectation.'

Jim Donaldson, executive vice-president, corporate comms EMEA, Weber Shandwick, suggests RBS' muted response was because it knew it faced a losing battle.

He says: 'The PR team must have known the storm it would create and thought "oh, well, let's just get on with it" when they released their statement.'

But College Hill Associates chairman Alex Sandberg believes the public can be accepting of large bonuses if they clearly understand they are linked to performance.

He says: 'Transparency is key, but if you are told you can only disclose half of the truth then that is going to be very difficult.'

Being open at the earliest opportunity is also crucial to prevent outrage, adds Sandberg. This is a message RBS has since taken on board. On 3 February chair Sir Philip Hampton, who had also turned down his bonus, emerged from the bunker to indicate more bonus announcements were coming while admitting on BBC Radio 4's Today programme that bankers' pay was too high.

 

SHAREHOLDER COMMS

In contrast, easyJet has been bullish in its response to public criticism of its bonus packages by Sir Stelios, whose family owns 37.5 per cent of the company.

He was expected to lead a vote against the deal, involving £8m worth of shares for ten senior executives over three years, at easyJet's AGM (which was taking place as PRWeek went to press). He has also written to the Prime Minister accusing the firm of softening performance targets and issued a public statement tapping into public outrage over bonuses, accusing directors of riding a 'gravy train of £180m free shares'.

EasyJet's response has included a point-by-point rebuttal of Sir Stelios' argument. This included showing that 75 per cent of the £180m shares he mentions were issued to staff when he was chairman.

Current chairman Sir Mike Rake has also accused Sir Stelios of being 'inaccurate, inappropriate and misleading' in a press statement. He also used the carrier's investor day event in London on 31 January to hammer home this message directly to investors. The Daily Telegraph described this as easyJet's 'strongest rebuttal yet' to Sir Stelios' claims.

EasyJet's in-house press team declined to comment, but a senior industry source says: 'EasyJet's aim was to not engage in a public tit-for-tat exchange. But when history is being rewritten you can see why the company wanted to respond.'

Kept in the loop

Marks & Spencer's decision to improve consultation among shareholders over remuneration packages in 2010 has helped the retail giant avoid such public spats.

Last year's annual report details how shareholders' recommendations helped shape the final remuneration package.

CIPR corporate and financial group chair Caroline Cecil says: 'When you take the time to explain decisions to shareholders and their views are taken on board then you will avoid the sort of public media spats we have seen elsewhere.'

Marks & Spencer corporate PR manager Amanda Glover adds: 'It was important to ensure shareholders were involved in this. It was absolutely the right thing to do.'

 

INTERNAL COMMS

The Co-operative Group ensures staff are directly involved with remuneration decisions. Its remuneration committee has an employee representative and salary questions are included in its annual staff survey. The results are considered by the board and published online.

The Prime Minister David Cameron has ruled out forcing all companies to ensure staff sit on remuneration committees.

Be transparent

But even without a similar structure to The Co-op's, strong internal comms on remuneration issues should ensure there is no staff backlash, says Donaldson.

He adds: 'What you cannot do is pull the wool over employees' eyes. If you are looking for their feedback you need to publish that and show you are acting on it.'

Transparency, including on staff bonuses, is part of the ethos of charity sector specialist bank Triodos, says its comms officer Will Ferguson. He says this transparency is a key recruitment tool.

One of Triodos' main internal comms messages is to show all staff how they benefit from the company's success.

For example, in 2010, every employee received a bonus of around £250. In addition, two per cent of the bank's total salary pot is handed out in bonuses based on performance by individual managers.

Insignia's Hemus says where staff can clearly see how they are also benefitting from the success of a company then 'they will not worry about the salaries and bonuses that the most senior executives are getting'.

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