Before the 2017 AGM season gets into full swing seems an opportune time to look back at what happened in the executive pay sphere during 2016 and forward to the challenges that remuneration committees face this year.

2017 will be the year that most companies must put their remuneration policies to a new shareholder vote. Last time round in 2014, the whole procedure was new and, despite a few false starts, companies were given a certain amount of leeway and the general consensus was that they didn’t do a bad job on remuneration reporting. However, the honeymoon period is long over and 2016 was another “shareholder spring” in the arena of remuneration. It was also a year of volley after volley of new regulations, updated guidelines and media and Government attention focused on executive pay.

February 2016: An early sign of the shareholder muscle-flexing to come, there was a “significant” (more than 20%) vote against Thomas Cook’s remuneration report, specifically the retrospective disclosure of performance targets.

April 2016: There was a whopping 60% vote against BP’s remuneration report, centred around the size of the CEO’s package.

A week later, the Executive Remuneration Working Group, set up under the auspices of the Investment Association, released its interim report. This proposed a radical departure from the tried-and-tested salary/bonus/LTIP package towards a simplified, bespoke remuneration structure tailored specifically to the long-term strategy of the company in question.

June 2016: The Brexit vote ….

July 2016: (A busy month, this one.)

The EU Market Abuse Regulation came into force. This resulted in the slightly odd result (at first glance) that the Model Code for directors’ dealings was removed from the Listing Rules whilst simultaneously the AIM Rules were amended to include for the first time a formal requirement for AIM companies to have a dealing code.

Theresa May became prime minister and pledged to make “big business” more accountable by having employees on boards and making the vote on the implementation of remuneration policy binding.

The final report of the Executive Remuneration Working Group was published. Its recommendations were aimed at re-establishing trust and strengthening relationships with shareholders.

The FRC released its Report “Corporate Culture and the Role of Boards“, which advocated a much stronger link between a company’s culture and values and the pay of its directors.

August 2016: The GC100 and Investor Group updated its guidelines. It addressed concerns expressed by various investor bodies about disclosure of annual bonus targets (as opposed to measures) and clearly demonstrating the link between remuneration packages and the company’s long-term strategy.

September 2016: A corporate governance enquiry was launched by the Business, Innovation and Skills Committee, focusing on directors’ remuneration.

Legal and General Investment Management (LGIM) published its report “Corporate Governance and Responsible Investment Policy – UK“. This echoed sentiments previously expressed across the year by the Government, investors and the media about the “significant increase to executive remuneration which has not necessarily been linked to the growth in shareholder value”. Its statement that the limits on the number of shares that a company can use for its share plans should include not only newly-issued shares (to limit dilution) but also market-purchased shares (to try to limit executive pay?) was a new departure.

October 2016: At the Conservative party conference, Theresa May gave employee representation on company boards the status of Government policy.

The Investment Association updated its guidelines on executive remuneration. LGIM’s suggestion that market-purchased shares be included in the limits on shares that can be used for share plans was not taken up.

November 2016: (another eventful month)

The shaggy-dog story about whether employees should sit on boards continued. At the CBI annual congress, Theresa May stated that “this is not about mandating … the direct appointment of workers or trade union representatives on boards”. A couple of days later in Prime Minister’s questions, she said “I believe that we should see workers representation on boards and … this government is going to deliver on that.”

Hermes Investment Management published its first solo “Remuneration principles: clarifying expectations” with the radical suggestion of a move towards paying wholly fixed remuneration based on shares, plus a salary.

Institutional Shareholder Services updated its proxy voting guidelines. Familiar themes were alignment of pay with the company’s long-term strategy, avoiding excessive rewards and encouraging companies to “consider pay models which do not fully align with the typical structure found in the UK market.”

The green paper on corporate governance reform was launched by the Department for Business, Energy and Industrial Strategy. Presumably any changes that will have an impact on remuneration will not crystallise until later this year, after most AGM notices have been posted. Companies who have sweated blood on a new remuneration policy this year might not be best pleased to have to amend it next year if, for example, the suggestion of having to include in the policy an upper threshold for all elements of directors’ pay is taken up. And the employees on boards issue? Finally recognising the legal and practical difficulties, this has been watered down to the suggestion that a non-executive director should be tasked with collecting employee and consumer views and ensuring that they are heard at board level.

January 2017: (OK, not quite in 2016, but nearly so and besides, it neatly completes a full year):

Like other investors, the PLSA has added an expression of concern over the size of pay packages. Perhaps thinking of the way the great British public flexed its muscles in the Brexit vote, it says that in this area companies should be “mindful of societal expectations” and “remuneration committees … should … be prepared to exert downward pressure on executive pay”. In a similar vein to the stance of Hermes, PLSA says shareholders should also vote against the re-election of a remuneration committee chair if they vote against the remuneration report.

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One might have sympathy for remuneration committees as they battle with these multifarious issues when forming their new remuneration policies. They could be forgiven for feeling somewhat confused and overwhelmed. Not to mention the risk of the chair of the committee failing to be re-elected if the vote on implementation of policy goes pear-shaped.

Those companies that renewed their remuneration policies in 2016 must be breathing a sigh of relief for the couple of years’ respite ….