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Influential industry-investor directors' remuneration reporting guidance refreshed for 2014

Influential guidance which brings together the views of companies and shareholders on how companies should disclose and set executive pay in line with their legal responsibilities has been updated to "supplement, clarify and emphasise" aspects of the existing document.

The GC100 and Investor Group, a working group which brings together leading institutional investors and some of the most senior general counsel and in-house lawyers working for FTSE100 companies, said that its 2013 guidance on the whole "continues to serve its purpose effectively". However, it has published a supplementary statement which companies should regard as part of the guidance, which is intended to promote best practice in future reporting.

Among recent developments in remuneration reporting highlighted by the group is the likelihood that the Department for Business, Innovation and Skills (BIS) will shortly publish a review of the implementation of the regime so far, as indicated in its October progress report on its implementation of the Kay Review recommendations on UK investment culture. The group said that it may issue further guidance in response to the BIS report.

"Although BIS had flagged up its review of remuneration at the end of October, the headline for that was the Kay Review, and companies may notice this brief reference more," said share plans and remuneration expert Matthew Findley of Pinsent Masons, the law firm behind Out-Law.com.

"Remuneration committees should check their directors' pay policy and reporting process against the IGC statement, considering whether any of the issues are relevant to their work and, more generally, if the new guidance or clarifications could be useful when preparing for the 2015 (or late 2014) report and AGM. The focus of the statement should indicate topics that investors may also look at, even if a company finds it does not want to follow any of the IGC Statement suggestions closely," he said.

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 GC100 and Investor Group's guidance (IGC Guidance) sets out best practice expectations under the remuneration regime, but is itself neither legally binding nor intended to be exhaustive.

Directors' remuneration reports published under the regime are split into two parts: a forward-looking pay policy report, which is subject to the 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.

The new IGC Statement emphasises the importance of listed companies ensuring, and explaining how, their executive pay and remuneration policies support the company's long-term strategy. This reflects both the existing law and the updated UK Corporate Governance Code, which applies to accounting periods starting from October 2014. The updated Code requires executive pay policies to contain clearer links between pay and the company's long-term success, and urges them to include provisions enabling them to recover or withhold variable pay when appropriate to do so.

The statement emphasises the need for companies to disclose performance measures and targets at an appropriate time, unless "genuine commercial sensitivity" requires them to delay or restrict this information. Remuneration committees are also encouraged to continue to consciously try to make reports and policies clearer and responsive to shareholder comment. The statement also contains reminders to follow the IGC Guidance on reporting directors' shareholding requirements; and to not "cherry pick" its provisions on 'emergency' discretion in remuneration policies.

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