Effective remuneration reporting: lessons from the UK
Executive remuneration reporting has been in the spotlight, with Australian companies under pressure from ASIC to provide more transparency as well as avoiding the dreaded three strikes. With Britain recently changing its disclosure rules, can Australia learn from its experience?
A new report by the Report Leadership group, backed by the Chartered Institute of Management Accountants, PricewaterhouseCoopers and Radley Yeldar, provides guidelines for implementing the new British rules, which came into effect in October 2013. Comprising a binding vote on remuneration at least every three years and new disclosure regulations, the rules aim to “increase the transparency of companies’ reports, improve accountability to shareholders and provide clear evidence of the linkage between performance and reward.”
British law’s differences
Guerdon Associates executive director Michael Robinson told the Australian Institute of Company Directors that the UK rules contained a number of differences with Australian law:
* Total remuneration figure to be provided for each executive
* Remuneration split into performance and non-performance pay
* “Realisable pay” clearly shown based on performance to the financial year-end and “pay granted” in the financial year
* Future pay policy to be disclosed.
According to Robinson, the main changes to pay reporting include:
* Separate “policy” and “implementation” sections in the directors’ remuneration report
* Pay policy subject to binding shareholder vote at least once every three years
* Implementation report subject to a separate annual advisory shareholder vote
* All elements of directors’ pay contained in a single, cumulative figure, with all companies to use the same approach
* Improved disclosure on performance conditions used to assess directors’ variable pay
* Pay information in a clearer format, including the level of awards paid for various levels of performance.
Remuneration report changes
Under the UK regulations, the remuneration report is divided into three parts: an annual statement, where the remuneration committee chair provides context and explains decisions made during the year; directors’ remuneration policy, setting out the approach over the next three years; and an annual report on remuneration, providing a detailed review of the financial year.
While the directors’ remuneration policy is only required to be included in those years when a binding shareholder vote on remuneration policy is being held, it is likely to become a regular inclusion with the aim of better informing shareholders.
Based on the example of “Generico,” Report Leadership provides examples of what effective disclosure should look like compared to recent practice, although noting that the new regulations are open to interpretation and best practice is likely to evolve over time.
For Australian companies with UK operations, the guidelines could prove invaluable when implementing the new regulations. And with Australia’s system of executive remuneration disclosure under constant change, it could prove an invaluable preview of future Australian law.
AUTHOR
Partner Article
Recommended for you
Hybrid securities can offer investors equity-like returns, yet with a lower level of risk. Here’s a rundown on hybrids and why they are attractive investment options.
Diversified managed funds could make an ideal addition to a managed account, as the broad toolset available to the fund manager enables them to seek outperformance and manage risk, according to Allan Gray.
The number of advisers using managed accounts has exploded in recent years, often at the expense of diversified managed funds. But diversified funds deserve a place in almost any multi-asset portfolio, held either within or alongside a managed account, according to Allan Gray.
Over the years government regulations regarding financial advice delivery has increased complexity, compliance costs and time to deliver advice. As a result, financial advisers have been forced to “orphan” their less affluent clients.
