Changes to UK Corporate Governance Code Confirmed

Following its consultation earlier this year, the Financial Reporting Council has issued a feedback statement setting out revisions to the UK Corporate Governance Code.

Changes include:

• Changing main principle D.1 on the level and components of remuneration to make it clear that remuneration policies must be designed to deliver long-term benefit to the company. This now states that “Executive directors’ remuneration should be designed to promote the long-term success of the company. Performance-related elements should be transparent, stretching and rigorously applied”. The FRC expects companies to set and report on targets that do not encourage excessive risk-taking and over which remuneration committees have effective control; 
• Requiring companies, when designing performance-related remuneration schemes, to put in place arrangements that will enable them to claw back or withhold variable pay when appropriate to do so;
• When a significant proportion of votes have been cast against a resolution, requiring companies to explain when announcing the result what actions they intend to take to understand the reasons behind the vote result; 
• Changes to schedule A (which deals with the design of performance-related remuneration) including:
• A change in terminology in the first section to require remuneration committees to determine an appropriate balance between “fixed and performance-related” remuneration as it was felt this covered all types of remuneration;
• Dividing it into three sections: balance between immediate and deferred remuneration; share-based remuneration schemes; and pensions.  

The Code applies to companies with a premium listing of equity shares. The changes will apply to reporting periods beginning on or after 1 October 2014.   The revised UK Corporate Governance Code can be viewed here.