WEIR Group director Clare Chapman has told politicians executive pay has not been excessive in recent years in spite of public anger about the payouts going to some company chiefs.
Insisting that pay excess is never right, Ms Chapman told a committee of MPs: “There isn’t the evidence that it’s been excessive over the last five years.”
She added: “There has been pretty much stability in executive pay levels. It hasn’t risen significantly and also has not outstripped employee pay.”
Ms Chapman, who chairs Glasgow-based Weir’s remuneration committee, was speaking at a hearing at Westminster where her equivalent at housebuilder Persimmon also faced a grilling.
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Persimmon stoked outrage about executive pay in January when chief executive Jeff Fairburn collected £45m under a long term incentive plan dating from 2012.
“Isn’t one of the reasons people are unhappy about £45m going to Jeff Fairburn is that the success of a company reflects the work of everybody and in the case of Persimmon the Government’s Right to Buy Scheme?” asked MP Rachel Reeves.
Marion Sears, chair of Persimmon’s remuneration committee since December, told the committee: “The lessons that I think were learned from the whole pay debacle: There should be remuneration discretion for undesirable outcomes; I think we would have handled it better if we’d had earlier and more joined up communications with shareholders.”
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She said the affair had also reaffirmed her belief in ensuring remuneration schemes get directors to hold as many shares as possible for as long as possible.
Euan Sterling, head of global stewardship at Standard Life Aberdeen’s fund management arm, noted it had voted against Persimmon’s remuneration report in April out of concern the LTIP could set a new high water mark for executive remuneration in the UK.
Ms Chapman said Weir had moved away from using LTIPs in the belief they could have unintended harmful consequences. Such awards often vest based on performance conditions over three years.
“When you give executives ‘cliff edge’ targets such as the traditional LTIPs what tends to happen is that they drive to the target which can lead to short term behaviours,” said Ms Chapman.
She added: “We’ve moved the long term incentive programme to be deferred shares which vest after seven years so it’s very much a case of rewarding executives in the same way you would be rewarding investors.”
Awards made by Weir can be reduced according to performance.
The new policy was finalised following some challenging conversations with shareholders.
Weir won the support of 92 per cent of votes cast at its annual meeting in April for the new pay policy.
The company had concluded that the LTIP programme was not appropriate for a firm which does much of its business in the cyclical oil and gas market.
The LTIP had paid out either 100 or zero per cent of the maximum possible in eight of the last ten years.
Chief executive Jon Stanton earned £1.44m last year when no LTIP awards vested.
Ms Chapman said Weir had also made significant changes to its annual bonus scheme with 30% tied to improvement on strategic measures such as people, customers, innovation and technology.
She told the Business Energy and Industrial Strategy committee it was important to get pay right at all levels of firms, noting Weir has a proud heritage dating back 150 years and wants to be around another 150.
Weir is putting a lot of focus on bringing more female engineers into the business.
But MPs expressed concern about the gulf in pay between senior executives and many employees in the UK.
Vernon Coaker said the current system is bust complaining people look at it with astonishment.
Ms Chapman based her comments on wider executive levels on an analysis of FTSE 350 companies completed by accountancy giant PwC.
She also chairs the remuneration committee of the Kingfisher retail group and sits on the Low Pay Commission.
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