Remuneration committees should have responsibility for reporting on what happens to the pay packets of executives following a share buyback, according to the Institute of Directors (IoD).
The IoD made the call as part of its submission to the Financial Reporting Council (FRC) for a consultation on a revised corporate governance code for the UK. The government announced in January that it was to investigate whether share buybacks take place to boost the pay of executives.
The IoD also called on a revised code to make it clear that executives would have to pay back bonuses in cases of gross misconduct or following “material” restatements or insolvency.
Dr Roger Barker, head of corporate governance at the IoD, said: “Following the collapse of Carillion, and in an atmosphere of growing public concern about occasionally excessive executive pay, the FRC have a chance to use revisions to the Code to bolster corporate governance in the UK.
“Business leaders will support the regulator’s attempts to ensure the code now takes better account of a number of key governance issues, such as ensuring workers have a greater voice in the boardroom.”
He continued: “The code correctly allows companies to do this in their own way, increasing boardroom diversity and highlighting the importance of companies taking a long-term approach to their business. The code could go further, however, in pushing greater transparency and accountability over executive pay.”
Business secretary Greg Clark said in January that there was concern that share buybacks were being abused “to artificially inflate executive pay”. He said the review would seek to answer whether government action was required.
The IoD is also concerned about what it sees as a lack of focus on director training in the code.
Dr Barker said: “We are frustrated that this redraft of the Code has not emphasised the important role that professional development and training of directors could play in improving board-level behaviour and decision-making.
“As in other professions, effective directorship demands specific skills and expertise. We must ensure that the people who sit on the boards of important UK companies have a profound understanding of what is expected in the delivery of good corporate governance—including the need to challenge and properly hold management accountable.”