Sir Michael Rake says boardroom pay deals can ‘encourage too much risk’

Sir Michael Rake: Has urged banks to show ''more pragmatism than populism'  Picture: PA
Sir Michael Rake: Has urged banks to show ''more pragmatism than populism' Picture: PA
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Executive pay structures are overly complex and can encourage too much corporate risk taking, according to City grandee Sir Michael Rake.

Speaking to The Scotsman ahead of an event organised by accountancy firm KPMG in Glasgow last night, Rake also said diversity on boards was “very important” but he expressed doubts about setting mandatory quotas to increase female representation in the boardroom.

Rake, chairman of telecoms giant BT and budget airline EasyJet, said he had been taken aback by the complicated structure of executive pay deals after stepping down as chairman of KPMG in 2007.

He said: “In moving from the professional partnership world to the public company world five years ago, the only thing that I found stunningly incomprehensible was the complexity of remuneration structures.

“WThere’s no doubt that in certain industries and situations, it led to an encouragement to push the limits and take risks that were perhaps inappropriate.”

The UK Shareholders’ Association recently criticised Business Secretary Vince Cable for failing to take recommendations from Professor John Kay into account when drawing up a consultation on executive pay. Kay – a former member of the Scottish Government’s Council of Economic Advisers – had argued that bonuses should be paid in shares, held at least until the executive has retired.

Rake, in Glasgow to talk about ethics and reputation management to an audience of non-executive directors, said Kay’s report “makes a lot of sense”, but he was not in favour of setting targets to increase the number of women on company boards.

Last year, the Davies Report recommended a target of 25 per cent women on boards for FTSE 100 companies by 2015. Other group have called for 30 or 40 per cent female representation.