Remuneration Reporting Workshop

Our Building Public Trust Awards 2022 workshop on Remuneration Reporting was conducted virtually due to the on-off train strikes scheduled for the day. However, the virtual setting did nothing to dampen the level of interest or the attendance, as a large audience joined PwC subject matter experts and leading representatives from the reporting, standard-setting and business forum communities to explore and debate the latest developments and ongoing trends in remuneration reporting.

Setting out the context

The proceedings were kicked off by Daniel Harris, PwC Partner Sponsor for the Building Public Trust Award for Remuneration Reporting setting the context for the Award for Remuneration Reporting in the FTSE 350, summarising the high-level criteria used to assess companies’ commitment to building sustained outcomes through insightful reporting. “It's really the level of quality of disclosures that we look at,” he explained. “Not what was reported but more the way in which it was communicated.”

Daniel then handed over to John Foster, Director of the Policy Unit at the CBI, who was a member of the independent judging panel that assessed the shortlist for the award and chose the winner. John described the changing environment for remuneration reporting, noting that the uncertain outlook coming out of the pandemic has made it even more vital that companies explain the rationale for their remuneration decisions. The shortlist was announced – Tesco, InterContinental Hotels Group, and Severn Trent – with Tesco announced as the winner. Tesco Group Company Secretary Robert Welch received the award on his company’s behalf.

A deep dive into what good looks like

Caroline Alhadeff, PwC’s BPTA Remuneration Award Lead provided the audience with some detailed insights into how companies can build trust through their remuneration reporting. “Fundamentally, our criteria is designed to commend and recognise best-practice reporting that’s insightful and transparent and goes beyond what companies are required to do from a regulatory perspective,” she commented.

Caroline explained that the four key themes underpinning this year’s award criteria were workforce fairness, pay for performance, strategic alignment and shareholder alignment. Looking at the overall scoring across the reports assessed, she said the scores on longer-established themes like pay for performance tended to be higher than those in areas where standards and expectations are newer and still evolving, such as workforce fairness.

Caroline then detailed what each of the four themes means in practice, using real-world examples from FTSE 350 companies’ reports. On workforce fairness, she noted that only 17% of companies directly explain how the RemCo consulted with employees to explain the alignment of executive directors’ remuneration and the company’s pay policy – but that this was actually an improvement on last year’s 5%. On pay for performance, she said that while most companies do disclose annual bonus outcomes, many lose marks on the quality of their disclosure of non-financial measures.

On strategic alignment, she said the key is how well companies explain the strategic rationale for their remuneration policy – with a new aspect of the criteria this year being a clear explanation of any ESG metrics being used, why they were chosen and how they’re applied. And on stakeholder alignment, while 40% of companies explain what engagement has taken place with shareholders and the impact this had, there’s still a gap around articulating the key themes and feedback from those conversations, and how this has been factored into RemCo decisions.

The high-level panel session

These insights set the scene for the workshop’s panel discussion – a number of top-line messages emerged including the fact that remuneration reporting is front and centre of governance, and that the role of the RemCo has become more complex in recent years, particularly with the rising emphasis on employee engagement.

On the reporting side, the panellists highlighted many points of best practice. These included the importance of explaining the alignment between executive pay and that of the wider workforce; the need to articulate how performance metrics align with the company’s purpose and strategy; and the importance of telling a clear story with a coherent flow, supported by easily-accessible charts and graphics. In the Q&A session at the end, an audience member raised the issue that companies sometimes face challenges in getting shareholders to respond to requests for engagement. The advice from the panel was to stress investors’ responsibilities under the stewardship code

Caroline and Daniel rounded off the proceedings by highlighting five likely focus areas in the next reporting cycle. First, potential windfall gains on LTIPs, as the dampening effect of the pandemic unwinds; second, setting bonus outcomes in the context of wider stakeholder experience; third, workforce alignment, especially in the context of salary increases; fourth, explaining why and how ESG metrics are used; and fifth, clear alignment of remuneration to strategy.

Staying ahead of the curve?

The bottom line? The scrutiny of remuneration reporting has always been intense – and is continuing to increase. To maintain and build trust, companies must raise their game in this key area of reporting, or face slipping behind. Is your organisation keeping pace with the leaders? To discuss the issues involved, please feel free to contact PwC’s remuneration team. The future of corporate reporting is taking shape. Together, we can build it.