The new regime for directors' remuneration reports of quoted companies came into force on 1 October and applies for financial years beginning on or after 1 October 2013 (see our September newsletter article for background details).
Practical guidance on the disclosures which are required under the new regime was issued in September by the GC100 and Investor group (see article in our October newsletter). This guidance was revised on 14 October when minor amendments were made. Brief details of the changes that have been made are detailed below:
Section 1.1- Structure of the guidance: clarification of the timing of when the new regime applies
Section 3.1- Single total figure for remuneration: a new section on pension related benefits in the reported year has been added
Section 3.2 -Total pension entitlements: the section on directors' prospective pension entitlements under a defined benefits or cash balance benefits pension scheme has been revised
Section 3.3- Performance period: clarification of what is meant by "vesting date"
Section 4.1.1- Restrictions on remuneration and loss of office payments: a new section on the interaction of precautionary grandfathering statements and the future policy table has been added
Section 4.8- Illustrations of the application of the remuneration policy: the section on market exercise price options has been revised.
To see the revised Guidance, please click here.
Revised ABI remuneration principles
The Association of British Insurers (ABI) has published a revised version of its Principles of Remuneration. These guidelines set out the views of ABI members on the role of shareholders and the directors in relation to directors' remuneration and how it should be structured. The guidelines were extensively revised in November 2012 (see our December newsletter article for details) and so this year relatively few changes have been made. The ABI sets out its support for the new regime for directors' remuneration reports of quoted companies and expresses general support for the GC100 and Investor Group Guidance (see above).
The ABI's overarching principles of remuneration are set out which cover the role of shareholders, the board and directors, the remuneration committee, remuneration policies and remuneration structures. There is more specific guidance for remuneration committees to help remuneration committees apply the ABI principles. There is also an appendix which sets out the ABI's views on some practical aspects of the new remuneration reporting requirements.
The ABI principles of remuneration can be read here.
Final NAPF and Hermes remuneration principles
A group of bodies involved in pension fund investment management, Hermes Equity Ownership Services, the National Association of Pension Funds (NAPF), BT Pension Scheme, RPMI Railpen Investments and Universities Superannuation Scheme, recently published a revised and final set of principles 'Remuneration principles for building and reinforcing long-term business success' (the Principles). We reported on the initial version of these principles in our March newsletter. They are intended to provide high-level guidance to companies on what these bodies expect of companies' remuneration structures and practices.
Publication of the final version of the Principles follows discussions with the chairs and remuneration committee chairs of almost half of FTSE 100 companies, together with others involved in the remuneration area. This has led to the initial principles being refined and the addition of a fifth principle. This calls for company and investor dialogue to take place throughout the year, and not just in the period leading up to the AGM, and for engagement with investors to extend beyond a company's top ten shareholders and asset owners.
The Principles can be viewed here.
NAPF revised corporate governance policy and voting guidelines for 2013
The NAPF has issued a revised version of its corporate governance policy and voting guidelines. There are not many changes to the 2012 version which we reported on in our January/February newsletter.
Some points to note:
following on from publication of the Principles (see above) the NAPF states that it expects companies to set out how their pay policies meet the five Principles set out in that paper
the view is expressed that the UK Corporate Governance Code provision requiring FTSE 350 companies to put the audit function out to tender every 10 years should be a minimum expectation
following the introduction of the reforms to directors' remuneration reporting, the NAPF's view is that remuneration reports should be put to a vote on a triennial, rather than an annual, basis
the NAPF believes that there should be an onus on investors to communicate why they vote against a company's remuneration policy
in the event that the NAPF's detailed voting guidelines for the appointment of a chairman are not followed, investors may consider an abstention or vote against the re-election of the director responsible for the search for the new chairman – usually the Senior Independent Director
the NAPF recommends that companies should form a committee of directors to review significant related party transactions, that the board should approve the review and that significant related party transactions should be disclosed in a company's annual report.
The NAPF Corporate Governance Policy and Voting Guidelines can be found here.
European Parliament adopts draft directive to improve gender balance on corporate boards
In November 2012, the EC published a draft Directive which set out proposals to improve the gender balance among non-executive directors of listed companies. We reported in detail on this in our December newsletter. The main provision of the draft Directive is that there should be a minimum objective of a 40% presence of the "under-represented sex" among non-executive directors by 2020 (or 2018 for public undertakings). Where the under-represented sex does represent less than 40% then, as between candidates of equal quality, priority must be given during the recruitment process to a candidate of the under-represented sex. Member states will be required to lay down appropriate sanctions for companies which do not comply with the Directive.
On 20 November this year, the European Parliament passed a legislative resolution to adopt, with certain amendments, the terms of the Directive. These include an increase in the range of possible sanctions for non-compliance. The text of the resolution now moves on to the Council of the European Union as part of the legislative procedure.
The proposal remains an objective rather than the imposition of a formal quota and applies only to non-executive directors. The decision not to include mandatory quotas was welcomed in the UK when the draft Directive was published.