The Quoted Companies Alliance (“QCA”) has published its revised Remuneration Committee Guide for Small and Mid-size Quoted Companies (the “Guide”). The Guide contains best practice guidance for smaller and mid-cap quoted companies, aimed at assisting the remuneration committees of such companies in developing a bespoke approach to remuneration to set pay for executive directors and senior management in a fair and reasonable manner and which supports the implementation of company strategy and effective risk management.
The QCA is an independent membership organisation which aims to promote the interests of small to mid-size quoted companies and its members represent approximately 85% of all quoted companies. The QCA published its first set of corporate governance guidelines in 2005 and first published the Remuneration Committee Guide for Small and Mid-Size Quoted Companies in 2012.
The Guide covers the operational aspects of the committee, the roles and responsibilities of those on the committee and those that work with the committee and covers directors’ remuneration reporting regulations, factors to consider in setting remuneration policy, communicating with shareholders and the remuneration report.
The 2016 version of the Guide builds on the version published in 2012, with a number of changes to reflect changes in corporate governance regulation, behaviour and best practice. The content appears under the following headings:
- An effective remuneration committee – the changes to the 2016 version include a rewording of the remuneration committee’s responsibilities and a new section setting out examples of weak and strong governance environments by reference to the committee’s objectives, as set out in this section. There is also an updated reference to the remuneration’s committee, namely that the QCA considers that the committee should have at least three independent, non-executive members;
- Roles and responsibilities – the 2016 Guide expands on the role of the remuneration committee chair, on which it places greater emphasis, and clarifies the role of the committee secretary;
- Remuneration reporting – a new chapter is included, which summarises the existing remuneration reporting requirements of the Large and Medium-Sized Companies and Groups (Accounts and Reports) Regulations 2008 and the Enterprise and Regulatory Reform Act 2013 and the QCA notes that a company may decide that adopting all or some of these requirements, while not obligatory, may be in the best interests of the company’s shareholders. This section also expands on earlier, existing guidance regarding statutory disclosures and the information which should be disclosed in the remuneration report. Finally, the Guide notes that the QCA considers that it is generally appropriate for its members to put the annual remuneration report, remuneration policy and new share schemes or long-term incentive plans to a vote;
- Factors to consider in setting remuneration policy – this section remains largely unchanged, save that the Guide clarifies that termination payments under a service contract should not include compensation for annual bonus periods after the date of departure or any unearned long-term incentives and that service contracts should also be reviewed whenever new incentive arrangements are put in place. Further, where base salaries are high, annual bonuses should be paid in shares;
- Communicating with shareholders – the Guide notes that understanding shareholder views is particularly important if a company faces a binding vote on its remuneration policy or needs to establish or review a share-based plan or wants to amend its executive remuneration policy and that different approaches will be required in consulting private and institutional shareholders. It also notes that a remuneration committee should explain (directly or through the annual report) why it did not accept certain views or suggestions expressed during consultation, adding that although companies should not be discouraged from adopting unconventional remuneration policies and structures, they should be prepared to explain their approach; and
- The remuneration report – this section explains the QCA’s approach to what information a company should include in tis remuneration report.