In 2025, six water companies in England lost the right to pay their directors a bonus. Ofwat’s rule on performance-related executive pay, introduced under the Water (Special Measures) Act, blocked around £4mn in its first year, most of it triggered by serious pollution incidents. The committees that set that pay had followed the process. What caught them out was context: how the numbers looked against sewage discharges, rising bills and a public in no mood to be generous.
A board can follow every rule, clear every policy and satisfy its advisers, and still find the outcome on the front page. Boards now answer to two tests at once: what the rules allow, and what public judgement will accept. Executive pay is where the gap between them shows most clearly. The same holds outside regulated industries: in 2023, as Unilever raised prices through a stretch of high inflation, around 60 per cent of shareholders voted against an executive pay plan that sat within policy yet read badly to a public already paying more. Pay becomes a controversy when a committee misjudges how its decision will be seen outside the boardroom. The people who could make that judgement are usually absent from it. That’s the role corporate affairs should play, and too often does not.
The gap a remuneration committee cannot close
Remuneration committees are well supported. They have remuneration consultants, legal counsel and investor relations, each covering a defined part of the problem. What they often lack is anyone whose expertise is the outside world: the political climate, the mood of regulators, the media environment, and the point at which public patience runs out.
The public doesn’t ask whether a bonus was permitted – it asks whether it was earned. A committee equipped only to answer the first question is exposed, whatever the quality of its paperwork. An experienced Corporate Affairs Director has standing relationships with regulators, select committees, unions and senior officials, which means they read the external environment as it shifts. They can tell a committee whether a pay outcome is likely to draw a parliamentary question, whether a regulator has been signalling concern or if the politics of the moment make a decision hard to defend whatever its merits.
That reading should be used as a stress test – and run before a decision is taken. Legal and remuneration advisers can confirm that a pay outcome is permitted. Whether it will be seen as legitimate is a separate judgement, and the one an experienced director is best placed to make. It’s vital to get their take on how a decision will land while the terms of executive pay packages, for example, can still be changed.
Bringing the outside view in early
The boards that handle pay well involve corporate affairs at the design stage rather than the announcement. In practice that means briefing them on proposed structures early enough for their view to change something. It also means giving them standing to say a decision is hard to defend, however sound the policy behind it. This doesn’t require a formal seat on the committee – just a conversation before the decision is settled, in which the Corporate Affairs Director is asked specifically to assess external risk. “Clear communication and a coherent, simple narrative is essential,” says Libby Chambers, Compensation Committee Chair at Wise Group plc. “At Wise Group, we strive to emphasise that our leaders experience financial upside only when our customer and shareholder performance is strong. Wise chooses to deliver all variable pay in equity, which underscores this point.”
Financial services has faced its own version of this. When the PRA and FCA removed the cap on bankers’ bonuses in October 2023, the regulatory logic was sound: the cap had inflated fixed salaries that could not be clawed back if something went wrong. The optics were harder, landing amid cost-of-living pressure and public scepticism about bank profits. The firms that came through it well had built their stakeholder relationships and their explanation ahead of the change, rather than scrambling once it arrived.
This discipline applies well beyond regulated sectors. “Corporate affairs are a key partner for remuneration-related discussions and assessments,” says Sue Whalley, Chief People and Performance Officer at Associated British Foods and NED at Centrica. “It is important that the likely perspectives and views of all stakeholders – regulators, media, employees, customers, suppliers, government bodies – are considered in making a decision, and that the potential ramifications and risks have been assessed in reaching a decision.”
A board can always explain why a pay decision fits its policy. Explaining why it is right, to an audience already inclined to be sceptical, is a different skill – and not one a remuneration committee holds on its own. The judgement is available. It is just rarely in the room when the decision is made.