Businesses are being told to reconsider the way they calculate executive compensation as bumper bonuses continue to face a considerable public backlash in the UK. In its updated 2018 UK Corporate Governance Code, the Financial Reporting Council (FRC) said remuneration committees should consider how much their broader workforce is pay when calculator the salaries of senior staff.
The FRC said bonuses will now be more difficult to cash in and urged businesses to consider the reputational damage of paying out huge bonuses to staff. It also said bosses should have to wait at least half a decade before being able to sell shares they have been paid as a bonus, ensuring they are only rewarded if their company performs well over the long-term.
The FRC’s measures aim to address the increasing number of shareholder revolts against executive pay in the UK. Earlier this year, a bonus package awarded to Persimmon boss Jeff Fairburn that at one stage was worth £131million caused a significant public outcry.
The FRC’s code also emphasises the need to refresh boards and undertake succession planning. The FRC said boards should consider the length of term that chairs remain in post beyond nine years and has strengthened the role of nomination committees around succession planning and ensuring diversity. Finally, the code also includes a new provision to enable greater board/workforce engagement that will require a board to describe how they have considered the interest of stakeholders.
Sir Win Bischoff, chairman of the FRC, said: ‘Corporate governance in the UK is globally respected and is a framework trusted by investors when deciding where to allocate capital. To make sure the UK moves with the times, the new Code considers economic and social issues and will help to guide the long-term success of UK businesses. This new Code, in its new shorter and sharper form, and with its overarching theme of trust, is paramount in promoting transparency and integrity in business for society as a whole.’
The UK’s business secretary Greg Clark added: ‘Britain has a good reputation internationally for being a dependable place to do business, based on required high standards. It is right that we keep under review and update our corporate governance code to ensure the highest standards. That is why I supported the FRC in deciding to update their Corporate Governance Code, and I am pleased to see the revised Code.
These changes will drive improvements in how boardrooms engage with employees, customers and suppliers as well as shareholders, delivering better business performance and public confidence in the way businesses are run. They will help the UK remain the best place in the world to work, invest and do business.’
Author: Daniel Flynn