Senior executive remuneration should be directly linked to the returns given to investors if the industry wishes to restore confidence in the long-term savings market, suggests the Treasury Select Committee.
The TSC's report into the long-term savings industry published today suggests the level of pay given to senior management in the financial services industry should mirror the performance of the company he or she works for.
This is because it would take away another obstacle standing in the way of re-building people's beliefs in long-term saving products, the TSC says.
It explains: "The recent trend in institutional shareholders becoming more active in challenging remuneration report is welcome, and greater shareholder activism should be encouraged."
"Shareholders and the membership of mutually owned organisations can nevertheless only benefit from anything which helps restore consumer confidence in the industry; and we suggest that greater transparency in the determination of senior executive remuneration and a more direct linkage between remuneration and the performance of those institutions relative to market conditions and accepted benchmarks would be useful in this respect."
Besides putting a direct link between fat cat pay and what the individual investor receives, the Committee also believes the industry should shift away from the current commission-based system as it is likely to hinder any restoration of confidence.
Several industry experts deem the commission system is one of the main reasons why the industry has been accused of "short-term behaviour", and the TSC adds this could be because this fee structure "primarily rewards the initial sale".
This has left many savers suspicious they are being sold a product for the wrong reasons, the Committe says.
"Shifting away from the current commission-based sales system common in much of the industry is likely to be a key component of any strategy to rebuild consumer confidence in the industry after the long catalogue of mis-selling scandals in recent years," it adds.IFAonline
To promote 'long-term investment'
Switching 'hard and expensive'
Smaller funds still packing a punch
To drive progress