UK: SHOULDN'T WE BE TOLD? - DIRECTOR'S SALARIES. - Openness on director's salaries and R and D could pay off.

Last Updated: 31 Aug 2010

Openness on director's salaries and R and D could pay off.

The principle of 'full and frank disclosure' has never been enthusiastically embraced by British business. Companies are required to provide information about directors' remuneration, for example, but the result is seldom full or frank. Many reveal what they spend on R and D - but not how R and D is defined.

On the salary front, 'Nothing is more damaging to the image of corporate bodies and their directors than the impression that they have something to hide,' says Tim Melville Ross, director general of the Institute of Directors. He argues that the fullest possible disclosure of remuneration levels would create 'a more balanced debate about their justification, and remove much public misunderstanding'. The secrecy which all too often shrouds the issue means that any morsel picked up by the press tends to be blown up out of all proportion, dangerously reinforcing the impression that there is one law for fat cats and another for shopfloor and office workers.

In its 1994 annual report Dixons, the electrical retailer, shows how to undermine this assumption. The company devotes two full pages to details of every named director's individual salary, his/her share options and the price at which these were granted.But there are those who argue that such openness is superfluous. 'The remuneration of the chairman, and the total board remuneration, are given now, with details of incentive and bonus payments. I don't myself think that more is necessary,' says Richard Pugh, deputy chairman of Great Universal Stores, the mail order stores group. GUS has a reputation for presenting a very low profile (see page 48). And Melville Ross at the IoD also sounds a note of caution: directors, he points out, are as entitled as anyone else to privacy in their personal financial affairs.

On the matter of research expenditure, Melville Ross is again in favour of disclosure, but at the company's discretion. Some businesses, in the pharmaceuticals sector for example, might regard details of R and D spending as commercially sensitive information. GUS's Pugh is concerned about the problem of arriving at an acceptable definition of R and D. 'It may be easy for a drugs company, but - as a retailer - do I spend anything? Yet if I look at my computer developments, that is an enormous spend. Any reference to R and D in an annual report would have to be very carefully defined or it would be very misleading.' Drafting of statute law is fraught with difficulty. But pressure for more, and more detailed, information is bound to grow. The more frank the approach that business adopts towards sensitive issues, the less will governments be inclined to extract it from them.

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