Welcome to our Employee Incentives Update, we hope you find it useful. This Update contains a round-up of key developments in remuneration during October 2017. 

In summary:

Corporate Governance

  • ICSA poll suggests that most Company Secretaries and other corporate governance specialists do not believe that the disclosure of CEO/worker pay ratios are likely to reduce pay inequality
  • Institute of Directors publishes its Good Governance Guide
  • Timetable for corporate governance reforms confirmed
  • Public register of companies that received 20% or more votes against a resolution

In full:

Corporate Governance

ICSA publishes results of its poll on the potential impact of the CEO/worker pay ratios

You may recall from our August Update that the Government intends to introduce secondary legislation to require quoted companies to report the ratio of CEO pay to the average pay of their UK workforce on an annual basis. The ratio is to be accompanied by a narrative explaining changes to that ratio from year to year and setting the ratio in the context of pay and conditions across the wider workforce.

Asked whether these proposals are likely to reduce pay inequality, of those surveyed as part of the ICSA poll, 55% thought it would not compared to only 13% who thought it would (with the remaining respondents being unsure).

Concern was raised that, notwithstanding the associated narrative explanation, pay ratios will be misconstrued. 61% believed that the ratios would be used to unfairly criticise companies, with 22% disagreeing, and 17% unsure.

A link to the full survey results can be found here.

Institute of Directors (IOD) publishes its Good Governance Index

The IOD has published its annual Good Governance Report for 2017 scoring the UK's largest listed companies in respect of their overall standard of corporate governance. The Report takes the form of an index compiled for the IOD by Cass Business School and examines a range of factors using five broad corporate governance categories which include "remuneration and reward".

In respect of the remuneration and reward category, the researchers used ten key indicators to score each company. These indicators range from whether there is a link between CEO remuneration and total shareholder return and the percentage of the CEO remuneration paid in shares to the size of, and attendance rate for, the remuneration committee.

Companies are marked out of 1000 with, at the top, 20 of the 103 companies reviewed scoring in the 900s and, at the bottom, one company scoring in the 400s and another in the 500s.

A copy of the Report can be found here.

Timetable for new corporate governance reforms confirmed

The Financial Reporting Council (FRC) has confirmed that secondary legislation necessary to implement the changes to the directors' remuneration disclosure rules (see our August Update) will be published during March 2018 and that changes to the UK Corporate Governance Code will be made "during the second half of 2018" following a consultation process.

Implementation will be in 2019 with early adoption actively encouraged.

Public register of companies that received 20% or more votes against a resolution

Again, you may recall from our August Update that the Investment Association (IA) has been tasked with compiling a public register of those listed companies that received 20% or more votes against a resolution at a general meeting (or who withdrew a resolution prior to the meeting). The IA has now written to all those companies that will appear on the public register in respect of 2017 general meetings giving them the opportunity to provide a public explanation on how they have addressed their shareholders’ concerns since the shareholder vote, before the public register goes live.

A link to the company's response will be included alongside their voting data as part of the public register.

Key Contacts

Jonathan Fletcher Rogers

Jonathan Fletcher Rogers

Partner, Employee Incentives
London, UK

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