Book Review: “Directors’ Remuneration Handbook” by Cliff Weight

Ian Davidson

| 229 Posts

Chartered Fellow

10 Jan, 2013 10:21

Directors’ pay is a highly
complex area with a multitude of rules, regulations and codes of practice; and
that is only in the UK. “Directors’ Remuneration Handbook” is an outstanding
reference book and guide to this area. It deals in concise terms with issues
such as reward theory and practice, strategy, design and the host of issues
including stakeholders, pay paradoxes, topical discussions, relevant codes and
statutory regulations around the subject.

It is a weighty book with 52
chapters and the same number of tables. The book index runs to nearly thirty
pages. While it is aimed very much at the UK market it has some very useful
commentary on US and other jurisdiction’s’ practice. Cliff Weight is very aware
of his target audience of reward specialists, Non-Executive directors, company
secretaries, academics and those with a detailed interest in this topical
subject. He moves from the general to detailed technical discussion, such as
issues around using Monte Carlo simulations for share option pricing, in an
easy to follow way, without being dry and dusty.

The chapter layout is clear and
logical allowing readers to dip in and out of the topics that are of interest.
The executive summary at the beginning of the book is, in my view, a “must
read” for anyone who wants to get an understanding of the paradoxes and issues
within the world of executive pay. It discusses, among other things, the
Principal Agent problem in a very clear way, the issues caused by the
differences in time horizons between CEO’s who have a median service of four
years; and the vastly different perspectives of long-term shareholders and
other key considerations. The summary also includes seven suggested
remuneration strategies depending on where the company is in its lifecycle.

There is a fascinating discussion
on the difficulty of measuring short term company performance for executives –
particularly when looking at share price movement. Weight points out the
difficulty of using TSR as a pay performance measure over the short-term. He
also touches on tax issues; an important consideration given all the tinkering
with the tax system we have seen over the last few years. He wisely points out
that we should not allow director’s pay strategy to be driven by tax

The bulk of the book focuses on
all the issues that impact Director’s remuneration including some useful
checklists. He also discusses in detail the different shareholder approaches to
pay and my own personal area of concern, the influence of shareholder advocacy
groups. One of the strong themes in the book is the importance of good
communication with and between stakeholders, including management, REMCO,
advisors, shareholder advocates, regulators and so on.

The book also contains a wealth
of data on the UK directors’ remuneration landscape. There are many helpful
tables in the book; although some are a little unclear – at least without a
magnifying glass – but this should not detract from this book being a key
reference work and probably the definitive volume on the subject.

This is not a cheap book
retailing at over seventy pounds. However, as a private buyer and compensation
and benefits specialist I thought it was worth every penny, my copy is already
well-thumbed and notated.

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