GC100 rules out substantial changes to its guidance on reporting directors' remuneration

Out-Law News | 04 Aug 2014 | 2:46 pm | 2 min. read

The GC100 and Investor Group do not intend to amend or republish their guidance for companies seeking to satisfy their requirement to report on directors' remuneration this year, the GC100 has confirmed.

Instead the group, which is made up of FTSE 100 general counsel and company secretaries as well as investors, will publish a paper later this year to "clarify certain aspects" of its influential guidance. The guidance is intended to assist companies in their compliance with the Directors' Remuneration Reporting Regulations, which came into force on 1 October 2013.

Share plans and incentives expert Matthew Findley of Pinsent Masons, the law firm behind Out-Law.com, said that companies would be relieved that significant change to the guidance was unlikely. The GC100 had been expected to review the guidance after the first AGM season under the new regime drew to a close, he said.

"As a result of significant dialogue between companies and investors, the AGM season has generally been relatively low-key," he said. "There certainly hasn't been a repeat of the 'shareholder spring' of 2012. It would therefore have been surprising if the GC100 had looked to make fundamental changes."

"Companies will need to review their directors' pay policy once the GC100 clarifications are issued and consider whether any changes – to the policy or how it is implemented - are needed," he said.

The GC100's guidance sets out best practice expectations under the new remuneration regime. Since October 2013, companies have been required to include more information about how directors have been and will be paid along with how this relates to company performance in their annual reports. This information can then be used by company shareholders when exercising their legally-binding vote on the company's executive pay policy. The guidance itself is neither legally binding nor intended to be exhaustive.

The new directors' remuneration reports are split into two parts: a forward-looking pay policy report, which is subject to a binding shareholder vote; and a report on how that policy was implemented over the previous year, which is subject to an advisory vote. Company remuneration policies are expected to last for three years and details of "material" changes to the remuneration structure must be included within the approved policy along with specific details of performance measures and targets for the current year subject to commercial sensitivities.

Since the UK reporting regime came into force, the European Commission has begun negotiations on its own 'say on pay' rules. Announced in April, the Commission's proposals would require companies to set out a maximum level for executive pay in a remuneration policy document and put the policy before a binding shareholder vote. Remuneration policies would also have to explain the ratio between average employee pay and executive pay, and outline how pay measures would benefit the long-term interests and sustainability of the company.

"Time will tell how much change will come out of the EU's proposed rules, which are expected to become law next year," Findley said.