The rules governing the way companies report on the remuneration of key executives need to be overhauled, with a report calling for regulatory change to simplify the reporting requirements.
Remuneration reports are impenetrable and based on "technical accounting rules contained in an array of tables and footnotes – as many as a hundred footnotes in some cases", according to the report Streamlining Remuneration Reporting by accounting and advisory firm PwC and chief financial officer industry group the Group of 100.
"As the corporate reporting environment has advanced, many of the provisions in the [Corporations Act 2001] and the regulations have been superseded or now overlap other reporting requirements," the report's authors noted.
They found remuneration reports make up about 14 per cent of the length of actual annual reports, with an average of 21 pages, which users complain are impenetrable.
One of the authors, PwC regulatory affairs leader Regina Fikkers, said changes needed to be made for investors to make quicker decisions about remuneration rather than having to rifle through long and complex documents full of unnecessary and often duplicated information.
"Legislative restrictions and outdated reporting practices are impeding companies from making changes for the better," Ms Fikkers said.
"Remuneration reports are complex and incomprehensible to both preparers and users and fail to properly explain the relationship between pay and performance. It's hard for analysts and investors to see the wood for the trees.
Technical jargon
"The information is often filled with technical jargon and hundred of footnotes.
"It's hard for business to explain the structure and it's hard for investors to follow the frameworks.
"In an era where financial reports have been streamlined and rewritten to be more user friendly, remuneration reports are overly complex by comparison."
The authors want the deletion of duplicate regulation around remuneration and flexibility in the way the information is presented.
They also call for information to be included by cross-referencing other sections of the annual report and to provide companies with the ability to post standing information online.
Ms Fikkers said the changes needed to reconsider the volume of detailed information required by users of the report in light of the overriding objectives of the disclosure.
"Currently companies disclose all cash components of executive pay such as superannuation and their car," she said.
"These are all fixed payments. What it should focus on is variable pay such as shares or bonuses."
