City Says: 'Link Directors' Pay To Company Performance'

Virtually all City analysts and investors (94%) agree that directors' pay should be linked more clearly to company performance, according to a report by MORI and the Investor Relations Society (IRS). Furthermore, almost three-quarters (73%) agree that 'fat-cat CEO packages are seriously harming the image of big business in this country'.

Quality of management continues to be the most important factor considered by analysts and investors when judging a company. And, when judging management, track record remains the number one factor for both groups. Among analysts, the value of senior management's experience, skills and technical expertise is the second most important indicator, while honesty and integrity rank second for investors.

"The ability of senior management to deliver results is clearly uppermost in the minds of the City's decision makers," comments Roger Stubbs, head of MORI's investor relations practice. "Our research suggests that this influential group perceives a lack of credibility in the link between performance and pay -- hence the burgeoning emphasis on demonstrable experience."

Since 2002, two criteria for judging companies -- valuation and growth potential -- have become significantly more important to the City audience, while the importance of financial performance, though still the second most important indicator, has declined. Together, these shifts indicate that the City is looking increasingly at companies' potential rather than at their current position -- a positive sign for market developments.

The MORI survey once again reveals that disclosure and transparency are central to effective corporate communications, with openness remaining the number one factor contributing to outstanding relations with the financial community (cited by 55% of analysts and 59% of investors). Availability of management and good communications are rated second by analysts and investors respectively.

Over half (54%) of investors and three in five (59%) analysts believe the quality of corporate investor relations has increased in the last two years. IRS chairman Diane Faulks believes the latest MORI/IRS report provides essential insight for investor relations professionals: "This report is a 'must read' for those involved in corporate communication as it provides a guide to what investors and analysts see as key components of effective communication".

"It is encouraging that the overall perception of the quality of investor relations remains high but there is no room for complacency. Effective Investor Relations 2004 highlights the value the investment community place on openness, transparency and honesty at all times and companies would do well to have these values at the heart of their communication and business practice."

• Effective Investor Relations 2004 pdf, 895KB

Technical details

2 MORI conducted face-to-face interviews among 95 investors, and telephone interviews with 75 analysts, between 16 June - 5 September 2003.