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We comment on the FRC consultation on executive remuneration

  • Response to FRC consultation on exec rem Image

20 Jan 2014

We have published our comment letter on the Financial Reporting Council’s (FRC's) consultation on whether to amend the UK Corporate Governance Code (“the Code”) to address a number of matters related to executive remuneration. We fully support the FRC’s position that changes should only be made to the Code where there is strong evidence demonstrating the need for change.

The FRC published their consultation in October 2013 and sought views on three main areas; clawback provisions, remuneration committee membership and actions companies may take if they fail to obtain a substantial majority in support of a resolution on remuneration. 

Extended clawback provisions

  • We agree that the Code should adopt the terminology used within the new directors’ remuneration regulations.
  • We do not think that the Code should be extended to include a “comply or explain” presumption that companies have provisions to recover and/or withhold variable pay.  We comment that “the binding vote on policy provides an opportunity for shareholders to register any concerns in relation to the recovery and withholding policy and therefore the current requirements to “consider” are appropriate”. 

Remuneration Committee membership

  • We do not support changing the Code to deter the practice of non-executive directors who are also executive directors in other companies sitting on the remuneration committee.  We comment that “there may be value in having the experience of an individual with executive experience on the committee”. 
  • We comment that the current provisions within the Code relating to the independence of non-executive directors, “should ensure that the constitution of the committee is appropriate and that it operates effectively”. 

Voting

  • We do not support the inclusion of a specific requirement to report to the market where a company fails to obtain at least a substantial majority.  We comment that the definition of ‘substantial’ will be “different for different companies making it difficult to define in the Code”.
  • We consider that the provisions under the new directors’ remuneration regulations, where companies are required to provide, in the Annual Remuneration Report, a summary of the reasons for failing to obtain at least a substantial majority in support of a resolution on remuneration are “sufficient”. 

Further comments and full response to all questions raised in the invitation to comment are contained within the full comment letter.

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