Wider workforce pay and policy influence, and details on how this relates to executive remuneration, would come under the remit of remuneration committees under a revised UK Corporate Governance Code.
The changes, which are part of a planned wholesale update of the code, have been put to consultation by the Financial Reporting Council (FRC).
Part of the FRC’s aim is to encourage greater focus on the “strategic rationale for executive pay levels in a broader context”. Recent reviews and a government green paper have formed the basis for an effort to align the treatment of executives and workers.
“At this critical time and as the country approaches Brexit, a revised code will be essential to restoring trust in business, attracting investment and ensuring the long-term success of companies for members and wider society,” said FRC chairman Sir Win Bischoff.
Remuneration committee principles under a revised code:
- The board should satisfy itself that company remuneration and workforce policies and practices promote its long-term success and are aligned with its strategy and values.
- A formal and transparent procedure for determining director and senior management remuneration should be established. Performance-related elements should be clear, stretching, rigorously applied and aligned to the successful delivery of the strategy.
- The board should exercise independent judgement and discretion when approving remuneration outcomes, taking account of company and individual performance, and wider circumstances. No director should be involved in deciding his or her own remuneration outcome.
An alternative to placing extra responsibility on the remuneration committee could be to place workforce policy oversight on to another committee, where a sustainability, corporate responsibility or “people” committee exists, today’s consultation noted.
The updated code also pushes for more power for committees to hold back rewards and compensation on a discretionary basis, within provision 37. An example would be where the actual performance of a company fails to align with the measurement of a performance condition.
Provision 41 within the updated code outlines this revision, and refers to a greater and broader level of detail in the annual report on how remuneration has been decided; if remuneration policy has worked effectively, and if not, what changes need to be made; and the level of engagement with stakeholders about remuneration.
The consultation runs until 28 February 2018.