The Advisors' Blog

– Broc Romanek

As noted in this Glass Lewis blog, the GC100 – the voice of general counsel and company secretaries in the FTSE 100 – and the Investor Group has published an updated version of its “Directors’ Remuneration Reporting Guidance,” replacing the guidance published in 2013 (oddly, the actual updated guidance doesn’t appear to be posted anywhere). Here’s an excerpt from the blog:

It is hardly surprising that the focus of the revisions revolves largely around some of the more contentious topics of the past two years. The guidance reflects widespread investor demands for greater transparency surrounding bonus targets, stating that in the event that companies do not include those targets due to commercial sensitivity (as permitted by the regulations on pay), “particulars of, and reasons for, the omission must be given in the remuneration report and an indication given of when (if at all) the information is to be reported”; many issuers have seen investor backlash over a perceived lack of transparency surrounding bonus hurdles, and it will be interesting to see if they respond to the revised guidance and placate investor concerns.

Similarly, the exercise of discretion has caused regular headaches for issuers and investors alike, and the latest guidance attempts to bridge the gap on this topic. Upon seeking approval of their initial policies, many companies provided the remuneration committee with broad powers to adjust performance targets and vesting outcomes, and even to exceed stated ‘maximum’ limits in relation to recruitment. In some cases, investor concerns over the scope of potential discretion prompted supplementary assurances regarding the committee’s intentions to appear on company websites or the stock exchange shortly in advance of AGMs. The latest guidance accepts that “arithmetic performance targets may lead to anomalies” and that “flexibility, discretion and judgement are crucial for the successful design and implementation of a remuneration policy”; however, in order to provide clarity to investors, the Group recommends that policies should include well thought out and detailed explanations of the possible circumstances under which discretion may be used.

Also see this Deloitte memo on the topic – and this Manifest blog about the Investment Association’s Executive Remuneration Working Group’s recent interim report seeking more radical reform in the pay area…