The Quoted Companies Alliance (QCA) represents small and mid-cap quoted companies outside of the FTSE350 including those on AIM and PLUS Markets.
The QCA recognises, rather helpfully, that current remuneration guidance is aimed at large (listed) companies which, although setting the benchmark for what is deemed to be "best practice", falls somewhat short of catering specifically for the needs of smaller quoted companies, some of which have very different requirements. The new QCA guidance1 published in February 2012 provides very practical tips on how such companies should develop their approach to executive remuneration.
The guide itself is divided into the following areas, which are considered in more detail below:
- Objectives of the remuneration committee;
- Factors to consider in setting remuneration policy;
- Communicating with shareholders; and
- Remuneration committee membership, organisation and functions.
What should a remuneration committee of a small quoted company be seeking to achieve? The overarching objectives should be to ensure that executive directors, whilst remaining motivated, have their interests aligned with shareholders' interests in the long term. Specific consideration should also be given to succession planning and risk management when considering their remuneration.
The QCA have set out how the remuneration committee can practically implement these objectives. The guide provides useful tips on best practice in setting remuneration policy whilst also providing guidance on the construction of service contracts, performance linked pay and long term incentives.
In what still remains a challenging economic climate, the QCA has sought to promote dialogue between a company's remuneration committee and its shareholders. Accountability and justification of decisions of the remuneration committee are central to the QCA's message, with emphasis on building shareholder trust as well as opening dialogue with institutional investors at an early stage. The guide also includes the kind of information that should be included in the annual remuneration report.
Membership, organisation and functions
The QCA promotes independence and stresses that the board should formally delegate authority to set executive directors' pay to the remuneration committee. The remuneration committee should also be composed of non-executive directors – all of whom should be independent. The guide provides details of the attributes to look for in a remuneration committee member as well as guidance on training and supplying a timetable for meetings.