For many years, the Irish Association of Investment Managers sought full disclosure of directors' remuneration. We didn't do so out of prurient interest in what people were earning, but to be able to make a judgment on the relationship between performance and reward. We felt that this disclosure, which is the norm in the developed capital markets of the US and UK, was essential if companies were to be more accountable to their shareholders.
With the assistance of the Tanaiste, Ms Harney, we achieved our objective and disclosure is, with effect from accounting periods ending December 31st, 2000, a stock exchange requirement. Disclosure to date this year has vindicated our stance.
The Combined Code on Corporate Governance, which is embedded into the Listing Rules of the London and Irish stock exchanges, states that remuneration levels should be reasonable but not excessive. It recommends that a proportion of remuneration should link pay awards to corporate and individual performance.
Over the past few years, companies have established - in compliance with the code and its predecessors - remuneration committees to decide on executive directors' remuneration. Many have engaged independent consultancy advice to assist their decision-making.
All have been required to make a remuneration statement in the annual report. From now on, we will be able to see how Irish-quoted companies rate on the quality and depth of that information.
Unhappily, on the basis of the information published to date this year, the quality of information in the remuneration report can vary from company to company, with some being very forthcoming while others are more obscure, relying on the carefully crafted words of "annual report speak".
Whose responsibility is it to ensure that performance and reward are linked? Is it that of the board of directors or the remuneration committee? What do shareholders do if they are unhappy with the level of pay? While the prevailing wisdom is that the primary responsibility is on the remuneration committee, investors look to the board to exercise collective responsibility.
According to the Combined Code, the members of the remuneration committee should be "independent non-executive directors". Increasingly, independence is seen as not being a former executive of the company; not receiving consultancy fees from the company; not being retained as a legal adviser; and not being a non-executive director for more than 10 years.
Currently we are assessing remuneration committee members of Irish-quoted companies against these criteria, in the context of a survey that we are carrying out on compliance with the Combined Code. No doubt, some directors who fall into one of those categories will be truly "independent" in practice. However, as shareholders do not see what goes on in the boardroom, they have to rely on some objective criteria in making assessments.
We have already begun evaluating this year's annual reports. We are focusing, in particular, on those companies where the composition of the board and remuneration committees do not meet with accepted standards, either because the positions of chairman and chief executive are combined or there is an insufficiency of independent non-executive directors.
We will measure them against the Combined Code and consider whether there is a need for more specific guidelines than the code provides. We will consider adopting recent UK government proposals that quoted companies give information on the performance of comparator companies and disclose whether the board changed the remuneration committee's decisions, with the reasons for the change.
We will also have to consider the most effective ways for investors to exercise a negative vote at an a.g.m. At present, shareholders who are unhappy with the level of directors' awards, for example, cannot vote against them directly. All they can do is vote against the adoption of the annual accounts or against the reappointment of directors, none of whom may be on the remuneration committee.
We may also publish guidelines, setting out our views and indicating the areas of non-compliance that may lead investors to exercise a negative vote at general meetings.
At the end of the day, institutional investors have to make the decisions that they consider to be in the best interests of their clients. That is what they are paid to do. Whether these decisions involve seeking change or disinvestment will vary depending on their views of individual companies.
The one certainty is that companies who want a stable and committed shareholder base should aim to meet the highest possible standards and achieve the best possible returns over time.
Ann Fitzgerald is chief executive of the Irish Association of Investment Managers, the representative association of managers of pension and other investment funds.
