The code is something that businesses with a premium stock exchange listing must adhere to but is also considered good practice for large, growing and well-established companies.
The code will now state: “Greater emphasis be placed on ensuring that remuneration policies are designed with the long-term success of the company in mind, and that the lead responsibility for doing so rests with the remuneration committee; and,
“Companies should put in place arrangements that will enable them to recover or withhold variable pay when appropriate to do so, and should consider appropriate vesting and holding periods for deferred remuneration.”
The code will also encourage boards to engage more with shareholders when large numbers have disagreed with a resolution.
FRC CEO Stephen Haddrill said: “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.”
Dr Roger Barker, director of corporate governance at the Institute of Directors, said: “We are supportive of a greater emphasis on ensuring that remuneration policies are designed with the long-term success of the company in mind. The Code is right to encourage companies to recover or withhold variable pay when appropriate to do so, and to carefully consider appropriate significant vesting and holding periods for deferred remuneration.
“It is also appropriate for companies to explain, when publishing general meeting results, how they intend to engage with shareholders when a significant percentage of them have voted against any resolution.”
Barker warned, however, that new rules forcing businesses to issue a “viability statement” examining prospects for the future beyond 12 months may not work so well in practice.
He said: “The future is inherently uncertain and companies do not have crystal balls. Although investors would like companies to provide them with certainty about their future prospects, this is often not realistic.”
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