Board pay: getting it right
Executive pay – always a hot topic – seems to have got even hotter over the last year.
With greater political, media and public scrutiny, companies, must, more than ever, ensure that they are rewarding directors appropriately for performance.
2019: the year of changes
Unsurprisingly, discontent about board pay levels made its way on to the Government’s agenda and has now resulted in a series of legal changes, a new Corporate Governance Code and extra requirements from investors.
These apply for financial years starting from 1 January 2019, but companies need to plan now, not least to show that they are taking note of the prevailing public mood. Also, investors and the FRC would like pre-compliance in at least some areas.
Remuneration committees will (among other things) need to:
- have power to reduce bonuses and long-term awards (LTIPs) when pay-outs do not reflect wider performance;
- have at least five-year holding periods for LTIPs, and post-employment holding periods;
- disclose and explain CEO: UK employees pay ratios;
- have appropriate directors’ salary increases alongside and those given to the wider workforce; and
- set directors’ pension contribution rates in line with the general approach to contributions to employees’ pensions.
One change has already happened and ensures continued media focus on pay resolutions: FTSE companies receiving dissent of 20% or more to any resolution appear on the Investment Association’s public register and will need to update that register with details of any action they are taking. That register is, of course, a simple way for the media, and others, to find out easily which companies have shareholders concerned over pay.
Therefore, remuneration committees must ensure that they formulate a flexible and suitable remuneration policy and report accurately on directors’ pay.
Help is at hand – an online tool on directors’ remuneration
To assist with navigating this increasingly complex landscape, we have developed a new online product. This new resource will help companies and their remuneration committees put together their directors’ remuneration policy and report.
The tool sets out all relevant rules and regulations (including the Corporate Governance Code), as well as specific information for the pay policy components, the single figure table disclosure, and all other content requirements for the remuneration report. We don’t just explain what the requirements mean, but also include investors’ expectations on pay design and disclosure, and market practice on many disclosures. We consider in detail the views of the Investment Association, the GC100 and Investor Group, the ISS, the PLSA and Legal & General Investment Management.
The tool gives online benefits of fast accessibility to required information and links to underlying legislation and regulatory guidance. Its additional features include:
- what to look out for in 2018/19, forward planning points, top tips and action checklists; and
- a step by step guide to the CEO:employee pay ratio disclosures and sample text for the prescribed narrative.