UK: Government responds to BEIS Committee report on executive rewards

Earlier this year the House of Commons Business, Energy and Industrial Strategy Committee published its report Executive rewards - paying for success: see here (pdf). The Committee made various recommendations, including that there should be an employee representative on remuneration committees. The Government's response was received by the Committee earlier this month and published yesterday: see here. The response has been described as a "missed opportunity" by the Committee's Chair, Rachel Reeves MP: see here.

UK: BEIS Committee report - 'Executive Rewards: paying for success'

The Business, Energy and Industrial Strategy Committee published its report 'Executive Rewards: paying for success' today: see here or here (pdf). The report is critical of the role played by institutional investors, remuneration committees and the Financial Reporting Council (FRC). The Committee calls for the simplifcation of pay, advocating a structure based on fixed salary plus deferred shares that would vest over a long period (and subject to provisions designed to prevent 'rewards for failure'). It also calls for remuneration committees to have at least one employee representative. 

The Committee is strongly supportive of the creation of the new Audit, Reporting and Governance Authority (ARGA), to replace the FRC, and states that the ARGA should be "a more empowered, aggressive and proactive regulator that has the ability to take decisive action, where necessary, on executive pay and its reporting" (para. 11). Many of the Committee's recommendations are directed at the ARGA, particularly with regard to the revised Stewardship Code and its enforcement, as well as the expectations placed on asset owners. The Committee also recommends that the ARGA should become responsible for monitoring the impact of the new Wates Principles of Corporate Governance for Large Private Companies.

UK: CIPD/HPC report on remuneration committee reform

The CIPD and High Pay Centre have published a joint report on the operation of remuneration committees: see here (pdf). Amongst the recommendations made is one calling for the replacement of the remuneration committee with a 'people and culture' committee, the membership of which to be more broadly based than is currently the case with remuneration committees.

Spain: CNMV annual reports on corporate governance and directors' remuneration

The Comisión Nacional del Mercado de Valores (CNMV) has published the latest editions of its annual reports on corporate governance and directors' remuneration: see, respectively, here (pdf) and here (pdf). A summary, in English, is available here (pdf). Of particular interest, in respect of companies' compliance with the Good Governance Code (pdf), are those recommendations not widely followed: these include the recommendations on (a) live broadcasting of the shareholder meetings and (b) the formation of separate appointments and remuneration committees for the largest companies.

UK: PLSA publishes updated Corporate Governance Policy and Voting Guidelines

The Pensions and Lifetime Savings Association has published an updated edition of its Corporate Governance Policy and Voting Guidelines: see here (pdf). Important changes have been made in respect of remuneration: the new guidelines recommend, for example, that where shareholders vote against a company's remuneration policy they should also oppose the re-election of the remuneration committee chair as a company director.

UK: Government green paper on corporate governance

The Financial Times newspaper reports that the Government's green paper on corporate governance will be published tomorrow and that this will set out proposals for, amongst other things, an advisory role for worker representatives on remuneration committees and the mandatory publication of pay ratios.

UK: Executive Remuneration Working Group publishes final report and recommendations

The Executive Remuneration Working Group, formed last year by the Investment Association to "bring forward proposals for a radical simplification of executive pay", published its final report and recommendations today: see here (pdf). Ten recommendations are made - none of which explicitly refers to simplification - under the following headings: increasing flexibility; strengthening remuneration committees and their accountability; improving shareholder engagement; increasing transparency on target setting and the use of discretion; and addressing the level of executive pay.  Other recommendations are also made in the report including, for example, that remuneration committee chairs should have at least one year's experience on the remuneration committee before becoming the chair of the committee.

The Financial Reporting Council, in a statement published today, described the Group's report as "thoughtful" and said that it would consider the recommendations concerning the skills and experience of the remuneration committee. The FRC also took the opportunity - perhaps mindful of its position as an advocate for the role of codes and best practice in shaping behaviour, given that further legislation in this area would appear imminent - to say that it welcomed the Government's current focus on improving corporate conduct, pointing in this respect to its recent report on corporate culture and the role of boards.

Europe: ESMA final report - guidelines on sound remuneration policies under the UCITS and AIFM Directives

The European Securities and Markets Authority (ESMA) has published its final report Guidelines on sound remuneration policies under the UCITS Directive and AIFMD: see here (pdf). Part 11 of the report sets out guidelines concerning the governance of remuneration, and suggests that all management companies (even those that are not obliged to do so under Article 14b(4) of the UCITS Directive) should have a remuneration committee.

UK: High Pay Centre report - are remuneration consultants independent?

The High Pay Centre has published a report titled Are Remuneration Consultants Independent?: see here (pdf). The report contains the results of a study of the disclosures made by companies in the UK FTSE Eurofirst 100 index in respect of their relationship with remuneration consultants. The report notes (to quote directly from it):

... despite legislation and the adoption of the voluntary RCG code, the extent of commercial relationships between firms which are cited as providers of remuneration services to remuneration committees and the companies to which services are provided, remains undisclosed. Almost all of the companies buying remuneration services from code signatories were also employing the same firm to provide services other than remuneration services.

Assertions of independence by reference to a voluntary code is a poor substitute for information which allows users of remuneration reports to understand the commercial ties that bind companies with the providers of remuneration services".

UK: High Pay Centre calls for reforms to performance related pay

The High Pay Centre has published a report titled No Routine Riches - Reforms to Executive Pay: see here (pdf). The report calls for major reforms to performance related pay for directors, including the abolition of long-term incentive plans (LTIPs). LTIPs have, the report argues, driven up executive pay without a corresponding increase in company performance. Other proposed reforms include: diversifying the membership of remuneration committees; requiring annual bonuses to be paid in cash not shares; and limiting the circumstances in which 'golden hello' payments can be made.

UK: Election 2015: Labour Party outlines corporate governance reforms

The Labour Party today published a manifesto for business, as part of its general election 2015 campaign: see here (pdf). The manifesto includes several corporate governance proposals:

We will give institutional investors a duty to act in the best interests of ordinary savers and to prioritise the long-term growth of the companies they invest in. We will change takeover rules to strengthen the role of long term investors by restricting voting to those already holding shares when a bid is made, and strengthen the public interest test to protect the UK’s science and research base. Everybody supports reward for outstanding achievement. Labour will improve the link between executive pay and performance by simplifying pay packages, putting employee representation on remuneration committees and requiring investment and pension fund managers to disclose how they vote on pay and other issues".

UK: The Senior Managers Regime and non-executive directors

The Prudential Regulation Authority and Financial Conduct Authority have today published a consultation paper in which they explain that the following non-executive directors will be subject to approval and inclusion in the new Senior Managers Regime: chairman; chair of the risk committee; chair of the audit committee; chair of the remuneration committee; chair of the nomination committee; and the senior independent director.

The consultation paper - titled Approach to non-executive directors in banking and Solvency II firms & Application of the presumption of responsibility to Senior Managers in banking firms - is available here (pdf). Further information is available in the accompanying press release: see here.

UK: FRC consults on proposed changes to the UK Corporate Governance Code

The Financial Reporting Council has published a consultation paper setting out proposed changes to the UK Corporate Governance Code: see here (pdf). A summary of the proposed changes, which focus on remuneration, risk management and going concern, is available here.

UK: England and Wales: Solicitors' duty of care required disclosure to remuneration committee chair

The ICLR has provided a summary for the recent Court of Appeal decision Newcastle International Airport Ltd v Eversheds LLP [2013] EWCA Civ 1514: see here. The headnote reads: "Where solicitors were retained by a company to draft new contracts between the company and its executive directors the solicitors breached their duty of care to the company by simply carrying out instructions given by the directors on behalf of the company".

In the circumstances of the case, the court held that the solicitors' duty of care required them to give express, separate advice to the chair of the company's remuneration committee regarding the nature and effect of the changes made in the contracts. In his judgment, Lord Justice Rimer stated (paras. [80] and [81]):

I readily accept that in a conventional case in which a company authorises one of its executives to instruct a solicitor in relation to a company matter, being one in which the executive has no personal interest conflicting with that of the company but can simply be regarded as a human organ of the company, there will ordinarily be no need for the solicitors to give advice as to the matter the subject of their instruction to anyone other than the executive. Advice to him will stand as advice to the company. That, however, was manifestly not this case".

UK: FRC publishes directors' remuneration consultation paper

The Financial Reporting Council has published a consultation paper on the subject of directors' remuneration: see here (pdf). Whilst welcoming views in respect of any aspects of the UK Corporate Governance Code relating to remuneration that require reform, the consultation paper also seeks views on three specific topics: clawback arrangements, whether non-executive directors who are also executive directors in other companies should sit on the remuneration committee, and actions companies might take if they fail to obtain a substantial majority in support of a resolution on remuneration.

UK: The Executive Pay and Remuneration Bill

The Executive Pay and Remuneration Bill, a private members' bill, received its first reading in the House of Commons last week and is scheduled for second reading on Friday this week. The Bill, if enacted, would amongst other things require any public company with a remuneration committee to provide a place on that committee for an employee representative.

UK: The Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013

The Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 were made last week and come into force on 1 October 2013: see here or here (pdf). An explanatory memorandum is available here (pdf). The Regulations set out new requirements for the content of the remuneration report, including greater disclosure with regard to remuneration policy and the obligation to provide a single figure for the total remuneration received by each director.

UK: HPC reports on remuneration developments in the UK and internationally

The High Pay Centre has today published a report titled Leading or lagging? Where does the UK stand in the international debate on top pay?: see here (pdf). The report notes that whilst the UK was a pioneer when the'say on pay' advisory vote was first introduced over ten years ago, other countries have now gone further in introducing mechanisms to deal with the problems associated with levels of executive pay.

UK: Banking reform - Government rejects remuneration amendments but promises new disclosure obligations

The Financial Services (Banking Reform) Bill has completed the committee stage in the House of Commons, earlier than expected, and now proceeds to report stage: see here. Amongst the amendments considered was one requiring employee representation on bank remuneration committees and another providing for banks' shareholders to appointment remuneration consultants. Neither of these amendments was accepted by the Government but the Financial Secretary to the Treasury, Rt. Hon. Greg Clark MP, stated that the Government would amend the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 to require quoted companies (not just banks and financial institutions it would seem) to disclose: whether anyone has provided advice to the remuneration committee; if so, who; whether that person or body has provided any other services to the company; who appointed the group or individual; how they were selected; the cost of that advice; and the basis of payment.

NB: The UK Corporate Governance Code 2012, in section B.2.1., provides: "Where remuneration consultants are appointed, they should be identified in the annual report and a statement made as to whether they have any other connection with the company."

Europe: ESMA publishes final guidelines on remuneration of alternative investment fund managers

The European Securities and Markets Authority has published its final Guidelines on sound remuneration policies under the Alternative Investment Fund Managers Directive: see here (pdf). These operate on a 'comply or explain' basis: competent authorities (e.g., regulators/supervisors) within the Member States are required to inform ESMA whether they comply or intend to comply with the guidelines.