Companies set to justify executive pay
The Financial Reporting Council (FRC) has unveiled a series of updates to its UK Corporate Governance Code, including explaining how executive pay packages align with the company’s long-term goals.
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The changes to the code aim to “significantly enhance the quality of information” investors receive about the long-term health and strategy of listed companies as well as raising the bar for risk management. The FRC also confirmed proposals for boards to include a ‘viability statement’ in their strategic report to investors.
Stephen Haddrill, CEO of FRC, commented, “The changes to the code are designed to strengthen the focus of companies and investors on the longer term and the sustainability of value creation.”
Key changes to the code include stating that companies should robustly asses their principal risks and explain how they are being managed or mitigated and placing greater emphasis on ensuring that remuneration policies are designed with the long-term success of the company.
It also notes that companies should put in place arrangements that will enable a remuneration committee to recover or withhold variable pay when appropriate.
“The change on remuneration also focus companies on aligning reward with the sustained creation of value,” Haddrill said.
Executive pay has increasingly become an issue amongst shareholders and responsible businesses. Earlier this year business secretary Vince Cable called on FTSE 100 to create sustainable remuneration packages and focus on the long term.
The FRC also states that companies should explain when publishing general meeting results how they intend to engage with shareholders when a significant percentage of them have voted against any resolution.
A number of firms have faced shareholder revolts over the last year, including the Royal Bank of Scotland, WPP, Reckitt Benckiser and Ocado. The changes could force companies to address the lack of support from shareholder even if a resolution is passed.
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