Government Releases New Governance Proposals

Sep 05, 2017
On 29 August 2017, the government released the eagerly awaited revised governance proposals following a consultation last November 2016. Commentators generally agree that, while the proposals have been watered down somewhat from the initial government promises last year, key themes and steps towards an open, transparent and subsequently make the UK a trusted place to trade and invest in. There is some clarification needed but at the moment its considered applicable to UK listed companies. 

The most emphasis has been placed on governing and monitoring executive pay and how that matches up compared to the UK average employee remuneration. Ratios are a clear trend on monitoring this, but how effective this measure is to be other than just simply stating the fact of what the ratio is, is yet to be seen. However, ratios appear to be here to stay at least in the first instance while its progress and impact is monitored, not least because of the impending equal pay ratios that are due to next year. 

There will also be further proposals aimed clarifying the pay outcomes due to executives under share incentives schemes. Some stakeholders have expressed concern in the past that its is not clear what executives will be receiving under any shares offered to them. This will mean that, when decisions are made about remuneration of executives, they are able to look at the whole package, presumably to allow more reasoned decisions to be reached. 

There will also be changes to the UK Governance Code, which is the best practice code for this area. Recommendations are to include that any long-term incentive shares given to any executives as part of their package should not be sold earlier than five years after which they were awarded. 

Finally, other notable changes will include expanding the remit of any remuneration committee to include when deciding on executive pay, the need to consider it across the group and against other senior management pay. Any chairman of any remuneration committee will also be required to serve 12 months on the said remuneration committee before taking up the position, which will presumably allow for the chairman to have a better understanding of the company before making any decisions on any final executive pay review. 

Governance continues to be, and will continue to be, a really hot topic for businesses going forward. While this does not necessarily mean that smaller businesses are going to be immediately effected by these changes, it seems inevitable that it will trickle down in years to come. 

For advice on governance and any questions you may have please contact our Business Law Team on 01279 755777 or 020 3892 6800.

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