CBI calls for curbs on 'rewards for failure'


The CBI has announced new guidelines on directors' severance packages and a wide-ranging review of pensions in a bid to head off growing anger over director's pay and the discrepancies in pension provision between the boardroom and the shop floor.

Earlier this month, the first TUC PensionsWatch survey found many parts of British industry were effectively operating a two-tier pension structure. More than half the companies that have closed final salary staff pension schemes to new employees still allow new directors to join the boardroom final salary scheme

CBI Director-General Digby Jones said: "The current state of the pension situation in Britain is extremely worrying and frankly it's just not fair."

But he added that the government had to do more to deal with UK’s growing pensions crisis.

Jones said that he intended to publish the results of an investigation by the CBI’s standing committee on pensions, chaired by Richard Greenhalgh of Unilever, before next year’s budget.

At the same time, the CBI has urged companies to adopt a new code of conduct that is intended to restore the reputation of British business by clamping down on "rewards for failure".

The CBI also hopes that the voluntary code will head-off possible legislation by the government.

The guidelines recommend that companies immediate disclosure contractual terms and conditions agreed with new directors rather than waiting for up to a year to publish them in its annual report. These should include severance terms. The terminology companies use when disclosing remuneration packages should also be simplified.

New directors should be on one year rolling contracts with regular contractual reviews and two years after new directors join, their contracts should be the same as existing directors. A proportion of pay should be in shares. And crucially, payoffs should be limited to basic pay and be paid in monthly instalments for an agreed period or until another job is obtained, whichever is earlier.

But while the CBI admitted that there was no guarantee that companies would take heed of voluntary guidelines, it attacked proposals to impose legally binding conditions on companies as “an unworkable solution imposed by others”.

“UK plc is clearly aware of the problem and wants to be seen to be putting its own house in order before someone else does it for them," Jones said.

"The CBI is unequivocally against rewards for failure," he added. "There have been a small number of well publicised cases where severance arrangements have given the wrong signals. It is vital that the business community works hard in every way at polishing its reputation with the wider community.

"The standing of business is at stake and must be tackled but in a way that ensures world-class companies can attract top international business people and retain and nurture home grown talent.

"This new framework balances flexibility with a major change of approach from the passive to the pro-active. I hope it will go a long way towards re-building shareholder and public confidence."

But if the government was tempted to introduce limits on directors' pay, Jones said, "it won't just be David Beckham who leaves the country."