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Employers must put in place stronger links between pay and performance, says CBI

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The CBI has called for action to boost the link between executive pay and performance to further strengthen the current system of corporate governance.

Responding to the Government's discussion paper on executive remuneration, the business group said pay must be "squarely linked" to performance with no rewards for failure. But it outlined a number of areas where the remuneration process and the level of transparency could be strengthened.

Among the measures, the CBI is calling for are: greater transparency on the criteria used to set rewards; executive pay to be considered as part of a broader organisation-wide pay strategy; and withholding performance-related pay in cases of poor performance.

Katja Hall, CBI chief policy director, said: "High pay is only ever justified by outstanding performance.

"The current system of corporate governance is a robust mechanism for setting executive pay when it's applied consistently and effectively, and there are ways it could be strengthened further.

"Remuneration committees have a critical role to play in ensuring that pay is always squarely linked to performance.

"We believe remuneration committees should be bolstered by widening the the pool of non-executive directors that serve on them and giving them greater scope to reduce or withhold rewards in cases of poor performance."

To strengthen the link between pay and performance, the CBI is recommending that remuneration schemes should avoid complexity and a widening of the pool of non-executive directors. It also said reward and remuneration and the means by which it is calculated should be "spelled out" in remuneration reports.