Hearts & Minds: Winning investors is the key to pay comms

Executive pay is back in the headlines – in truth it is never far away – with the likes of Thames Water attracting flak. Lord Michael Spencer has chipped in, saying companies should be able to pay bosses like “top-rate footballers” without suffering criticism. 

Spencer, perhaps unwittingly, has highlighted the problem with the comms surrounding remuneration of the CEO and their top team. It was neatly summed up in ‘Pay Without Performance’ by Lucian Bebchuk and Jesse Fried. Now 20 years old, the seminal book from two law professors has stood the test of time. In it, they make the vital distinction between disclosure and transparency. Disclosure, revealing how much someone is paid, is now the norm and hard to avoid, hence the controversies. But transparency, how exactly that sum was reached can remain hidden or at least is not fully explained. 

Which is why Spencer’s assertion starts to fall away. The point about footballers is that they perform, week in week out, in front of huge audiences. The crowd, camera and media judge them on their worth and that view is supported by published computer data on every aspect of their game. The actual performance of a CEO, what they really do, how they make a difference and add value, stays behind the scenes and is largely unknown. 

There is another reason why Spencer’s claim does not pass muster: FTSE 100 chief executives tend to be paid more than Premier League footballers anyway. What Spencer is alluding to is that football’s finest do not attract the same unwanted publicity as CEOs – that’s providing what they do on the pitch (and assuming they appear, since they are often derided if they are not picked but still rewarded) is deemed acceptable. 

Comms-wise there is nothing to be gained and much to be lost from shirking the issue. Tackle it head-on by engaging with shareholders. If they’re satisfied, then the public arguments diminish - it’s much harder to attack something if those that own the company are happy. The company, not the CEO but the chair and members of the compensation committee, need to outline their approach and how that was applied in this case. They should be ready for tough questioning, especially around benchmarking and how those comparisons were selected. 

Leaving investors with a clear understanding of how senior executives’ packages were arrived at, winning their trust, should be your aim.

Chris Blackhurst is one of the UK’s foremost business journalists. He was previously Editor of The Independent and City Editor of the Evening Standard.