Developments in Remuneration Policy

In this article, the former chairman of the International Corporate Governance Network (ICGN) begins by summarizing the guidelines on “Executive Remuneration” that were published by the ICGN in July 2002. Among other changes, the guidelines called for independent remuneration committees, full disclosure of remuneration packages in an annual report, reduced reliance on stock options, elimination of executive loans and CEO bonuses for making acquisitions, better‐informed and more active institutional investors, and a “clear mechanism by which shareholders are given the opportunity—possibly through an advisory vote at the annual shareholder meeting—to review and influence remuneration proposals.” Thanks in part to the efforts of the ICGN and growing investor activism, U.K. companies have made “a reasonably swift transition to a position where the majority of their boards are totally independent of management, and free of other potential conflicts of interest.” U.S. boards, by contrast, remain “dominated by the imperial CEO” and “have failed to rein in the ambitions and appetites of their CEOs in such circumstances.” What's more, U.S. institutional investment managers have failed to hold boards accountable for escalating remuneration. The solution to this problem lies, as suggested above, in “greater transparency, better analysis, and more shareholder monitoring.”