DISCUSSION Will annual binding votes on executive pay actually discourage short-termism in large firms?

by Yolanda Villafuerte _______2nd September 2016

Mark Goyder, chief executive of Tomorrow’s Company, says Yes.

Remuneration structures are one cause of short-termism. Others include short chief executive tenure, threats from opportunistic shareholders, noise created by sell-side research, and the marketing need for fund management companies to demonstrate performance.

Listed companies can move away from the madness with three steps. First, in its mandate the board defines strategy and time horizon. It communicates this clearly, attracting fund managers who support this approach and, like Unilever, driving away investors who want to be less patient. Second, the board defines the kind of culture and behaviours it will promote. Third, the remuneration committee is charged with ensuring that rewards and recognition across the company are in line with these.

With these steps in place, the annual binding vote on pay becomes a strategic exercise – an evaluation of the company’s approach to rewards for value creation. It will only be a problem for firms which have not taken these coherent steps.

Read the full debate here.