In December 2009 the Financial Reporting Council (FRC) published its consultation draft of a revised Combined Code on corporate governance (to be renamed the UK Corporate Governance Code).
Proposed changes to the provisions on directors' remuneration include:
- a stronger supporting principle on performance related remuneration requiring "stretching" incentive performance conditions related to the "long-term success of the company";
- a recommendation that non-executive directors' remuneration should include neither share options nor (which is new) "other performance related elements";
- a new statement aimed at linking incentive schemes to the risk profile of the company and discouraging excessive risk taking;
- a recommendation that consideration should be given to the inclusion of clawback provisions in executive incentives for "exceptional circumstances of misstatement and misconduct";
- the deletion of the current code's recommendation of performance conditions based on comparative total shareholder return.
Whilst the revised code will be of most relevance to listed companies, it will nevertheless be influential for other companies, especially AIM companies.
The final report of the Walker review of corporate governance in UK banks and other financial institutions also made recommendations relating to the remuneration of board directors and other "high end" employees in the financial sector. These included emphasis on deferral incentive payments to align rewards with sustainable performance; the extension of the remuneration committee's responsibilities to include firm-wide remuneration policy and oversight of the remuneration packages of "high end" employees who are outside the board; and the disclosure in bands of information relating to the remuneration of "high end" employees.
Also in December:
- The Association of British Insurers (ABI) issued updated ABI guidelines on executive remuneration reflecting some of the FRC and Walker recommendations.
- The London Stock Exchange proposed changes to the AIM rules requiring disclosure of directors remuneration (including share options and other long term incentive plans) in the annual audited accounts of AIM companies for financial years ending on or after 31 March 2010.