While Vince Cable Makes a Noise, the FRC Treads Softly

April 2014

The UK press has recently been full of Vince Cable’s dissatisfaction with the way that FTSE companies have reacted to the new regulations on executive pay.  Dr Cable has written to the heads of the remuneration committees of the FTSE100 to urge them to comply with the spirit of the regulations.  There has been less comment about the proposals from the Financial Reporting Council to tighten up the remuneration provisions of the UK Corporate Governance Code.

As we reported previously, the FRC consulted last year on a number of remuneration-related issues and is now consulting further on the result.  If anyone was expecting an earth-shattering outcome then they will be disappointed.  In short, the FRC recognises that the new regulations haven’t had time to bed in yet and have concluded that it’s too soon for any radical changes to the Corporate Governance Code.

The main proposals are:

  • The long-established wording about the need to “attract, retain and motivate” directors should be scrapped and replaced with “remuneration should be designed to promote the long-term success of the company.  Performance-related elements should be stretching and rigorously applied.”
  • Companies will need to implement clawback on variable pay (bonuses and long-term incentives) or explain why they have not done so.  However, the FRC has declined to lead the market in terms of how these clawback provisions should be structured.
  • Where a significant proportion of shareholders cast dissenting votes at a general meeting the company will be obliged to indicate the steps it intends to take to understand the reasons for the dissent.  This will apply to all resolutions, not just those relating to remuneration.  There is no guidance on what  a “significant proportion” means.
  • There is also a gentle nudge in the direction of deferring remuneration and extending share retention periods.

It is interesting to note that there was no virtually support from respondents for the proposal against an executive director of one company serving as a non-executive director of another.

Consultation responses must be in by 27 June and the revised Code will apply for accounting periods beginning on or after 1 October 2014.