Today, the Government has opened a consultation on modernising and simplifying corporate reporting obligations. The consultation covers several areas, but this Ellason Lens focuses only on Chapter 7, covering proposed amendments to the Directors’ Remuneration Report (DRR) and remuneration voting regime.
Following the Government’s previous engagement with investors and companies, elements of the DRR that have been identified as key investor-critical information are proposed to be retained, including: the ‘single figure’ remuneration table, the Remuneration Committee Chair's statement, details of the performance measures linked to the previous year's awards, the forward-looking remuneration policy, and the ten-year graph outlining CEO pay and TSR. The single figure methodology is also set to remain, with consultation sought on possible refinements such as a de-minimis threshold.
In terms of what is being removed, the Government is proposing three categories:
Disclosures considered to be of limited value for shareholders
Including: the CEO-employee pay ratio, relative importance of spend on pay, the 50% share price appreciation illustration within the scenario charts, etc.Disclosures already suitably covered by the UK Corporate Governance Code
Including: the work of the Remuneration Committee and details of advisors, malus and clawback provisions, engagement with shareholders and employees, response to significant dissent, etc.The annual advisory vote on Directors’ Remuneration
Leaving the triennial (and binding) policy vote as the sole voting mechanism for shareholders regarding remuneration, on the basis that the advisory DRR vote adds little value once the remuneration policy has been approved
Various requirements are proposed to be streamlined rather than removed; the statement of how the remuneration policy will be applied in the following year would be limited to where material changes have occurred, such as an executive director joining or leaving, or removed entirely. Additionally, the disclosure of executive directors’ shareholding interests, whilst valuable information to investors, may be streamlined or removed on the basis that this information is available through other sources such as RNS announcements.
It is worth noting that some of these provisions would remain within the confines of the UK Corporate Governance Code. As a result, it would be up to companies to determine, on a ‘comply or explain’ basis, their approach to disclosures in this regard.
The consultation period closes on 30th November.
Ellason commentary
We welcome this initiative and the proposal to remove disclosures which are not useful to stakeholders, and which can be a laborious exercise to calculate. However, we question whether removing key context (such as forward-looking application of policy, executive director shareholdings and past AGM voting results) or disapplying long-established governance controls (such as the advisory vote on the DRR) goes too far and reduces the ability for shareholders (particularly individual shareholders) to critically evaluate remuneration decisions and hold Boards to account for decisions taken on their behalf. We will be reviewing the proposals in the coming days and responding to the consultation. We will also be sharing further updates in due course.
For more information, please contact your regular Ellason contact, or email us at: info@ellasonllp.com
