GLOBAL – Progress made in linking pay, performance and risk may be eroded in 2014 as regulation reshapes remuneration, according to a report by Mercer.
Pay within financial services, and among senior executives more broadly, is the subject of much regulatory activity globally, including developments such as say-on-pay and bonus caps, with particular impact in Europe.
The Global Financial Services Executive Remuneration Report found that most companies, 68%, had not yet set a fixed/variable compensation ratio cap, and many indicated it was not on their agenda, (albeit prior to the finalisation of requirements for the Capital Requirements Directive IV).
Organisations in Europe were thinking about it more than other geographies, but setting such a ratio still represents a major change and many challenges for these companies to manage, Mercer said.
Vicki Elliott, senior partner at Mercer, said: "With less variable pay that can be linked to performance, there will also be less pay that can be deferred and aligned with the risk time horizon of the business.
"This is contrary to the principles developed by the Financial Stability Board after the financial crisis. Rewards in banks and other financial organisations should be tied to multi-year performance to help manage risk."
Of the organisations surveyed, 76% stated that the proposed requirements were creating an un-level playing field, and only 22% said their organisation would benefit competitively.
In other news, the CDP – formerly the Carbon Disclosure Project – the Climate Disclosure Standards Board (CDSB) and the International Integrated Reporting Council (IIRC) have formed an alliance to accelerate integrated reporting.
They said their Memorandum of Understanding (MoU) demonstrated their complementary roles, on the basis that reporting on the use and depreciation of natural capital – including carbon, energy, water and forest commodities – was integral to integrated reporting (IR) and a key pillar on which IR is based.
Paul Druckman, chief executive at the IIRC said: "The express intention of the IIRC to work collaboratively with other reporting initiatives, frameworks and innovations is to provide greater clarity to the market and achieve greater momentum towards the adoption of integrated reporting."
The IIRC's draft framework relies on existing reporting standards, guidelines and approaches, such as the Climate Change Reporting Framework, which was developed by CDSB, a CDP special project, in conjunction with a range of experts, including those from the global accounting profession.
Meanwhile, in the UK, Parliament has passed amendments to the Companies Act 2006, which will require all UK quoted companies to report greenhouse gas emissions in their strategic or directors' reports.
The CDSB strongly supports the amendments, which recognise the need for both financial and non-financial information to be considered in assessing a company's ability to create value.
However, it looks forward to the elaboration and strengthening of some aspects of reporting requirements when it is reviewed in 2015.
For example, CDSB would welcome clearer alignment between UK and international requirements on non-financial reporting, including proposed amendments to the Fourth and Seventh EU Company Law Directives, commonly known as the EU Accounting Directives.
Furthermore, it states that the legislation would benefit from greater clarity on the narrative and other information that is needed for readers of reports to understand the risks and opportunities associated with the emission of greenhouse gases, as well as the actions companies are taking to respond to those risks and opportunities.
Lastly, in the US, Northern Vermont-based Sterling College has completed the divestment of its endowment from the fossil fuel industry.
As of 1 July, the college's endowment is invested in a fossil fuel-free portfolio with Trillium Asset Management.
Sterling College president Matthew Derr said: "By fully divesting the endowment from fossil fuel extractors, we are re-affirming our mission to educate problem solvers and the next generation of environmental stewards."
Trillium Asset Management, meanwhile, said that, as of 31 March, its Sustainable Opportunities Strategy has been calculated to be 67% less carbon-intensive than its benchmark, the S&P 1500 Index, according to a carbon footprint analysis conducted by environmental data analysis firm Trucost.
The strategy seeks to provide long-term investment growth by investing in companies positioned to thrive during the transition to a more sustainable economy.
The strategy has been fossil fuel-free since inception.