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Directors' contracts and severance - best practice guidelinesAs part of its response to the DTI consultation on Rewards for failure, the CBI has prepared the following best practice guidelines for remuneration committees. The guidelines are intended to address the issue of executive directors’ contracts and severance. References to directors in the guidelines are intended to be to executive directors. The CBI believes that UK plc needs to be able to attract, motivate and retain business leaders of the highest calibre against the backdrop of an internationally competitive landscape as well as, where necessary, part company with them. The contract of employment between a company and a director is a vitally important part of this process and is where the problem of perceived rewards for failure first arises. It is business itself that is best placed to determine the remuneration packages of its directors in the light of the competitive circumstances in which it operates. However, contracts must carry the confidence of shareholders and other stakeholders and we recognise the damage to the reputation of British business caused by the small number of high profile reports on severance arrangements with directors. The CBI is unequivocally against rewards for failure. However, we do not believe that there is any role for additional law in this area. British business must retain the flexibility to offer tailored contracts in its fight to secure, by recruitment from outside and from internal promotion, the best talent in an environment, which is both globally mobile and includes the alternative attraction of private equity. What business wants is publicly available guidance for remuneration committees that will act as a flexible but transparent framework when negotiating contracts. The joint statement by the Association of British Insurers and the National Association of Pension Funds offers helpful expectations from the investor community. But it is vital that business speaks for itself and is seen to act itself. Business reputation needs to be restored in the eyes of shareholders and the general public and business needs to protect the vital flexibility it currently enjoys in contract negotiation. The CBI, in consultation with its members, has prepared the following guidelines to act as the flexible framework against which British companies, and in particular members of the FTSE100, can benchmark their directors’ contracts at the time when those contracts are negotiated." Download the PDF document of our abridged response to the DTI consultation document on Rewards for failure, including guidelines, or download our our full response, 425kb. If you need free Adobe Acrobat PDF reader software or help with PDF documents, go to the Adobe Accessibility site at http://access.adobe.com Email us if you have accessibility requirements. |
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