The FRC has unveiled a series of revisions to the UK Corporate Governance Code in an attempt to improve corporate disclosure and strengthen risk management protocols. Among the most significant changes to the code are those with regards to executive remuneration, as the regulator attempts to address the widening margin of worker to executive pay.
“The changes to the Code are designed to strengthen the focus of companies and investors on the longer term and the sustainability of value creation,” said the FRC’s chief executive Stephen Haddrill in a statement. Scheduled to take effect in October, the revised code seeks to reward long-term value and guard against an enduring sense of short-terminism that has for too long dogged big corporate names.
Among the most significant changes to the code are those with regards to executive remuneration
“The Code has also been changed in relation to remuneration,” said Haddrill. “Boards of listed companies will now need to ensure that executive remuneration is designed to promote the long-term success of the company and demonstrate how this is being achieved more clearly to shareholders.”
Soaring executive pay and the widening margin between the highest and lowest earners has recently come under fire in the UK. One report published by the High Pay Centre in August found that the average FTSE 100 executive pay package was 130 times that of the average worker. “Britain’s executives haven’t got so much better over the past two decades. “The only reason why their pay has increased so rapidly compared to their employees is that they are able to get away with it,” said Deborah Hargreaves, Director of the High Pay Centre.
Under the new UK Corporate Governance Code, however, responsibility for ensuring remuneration is awarded on the condition of long-term success rests with the remuneration committee, who are left to determine what constitutes fair pay. “Companies should put in place arrangements that will enable them to recover or withhold variable pay when appropriate to do so, and should consider appropriate vesting and holding periods for deferred remuneration,” said the FRC.