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Clarify policies on pay and incentive schemes

Companies will have to explain their pay policies, particularly complex incentive schemes, better.

Our Verdict

Pay packages can include a complex mixture of salary, bonuses, shares, and benefits. This promise is to ensure listed companies “have to” explain how they calculate pay packages – especially those that are more complex.

In August 2017, the government issued a response to an earlier consultation on corporate governance, confirming their recommendation that organisation demonstrate “how pay and incentives align across the company, and to explain to the workforce each year how decisions on executive pay reflect wider pay policy. ”

As a result, the revised UK Corporate Governance Code in July 2018 set out new requirements for, among other things, “clarity” and “simplicity” in how remuneration packages were calculated and explained (see links below for detail).

So some very definite progress has been made. However, we have to bear in mind that the Corporate Governance Code does not apply to all companies and, even if it did, it is not compulsory. Instead, it works on a ‘comply or explain’ basis, which means if companies choose not to comply they must explain to their shareholders (not to the government or the FRC who sets the corporate governance code) why they don’t feel compliance is necessary.

The non-compulsory nature of the Corporate Governance Code means we can’t say for sure that companies “have to” explain their pay policies. We’ll therefore be getting further opinion from other organisations in this field, and for now are marking this as ‘in progress’. Follow this policy for updates.

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