Locations
Market reCap
- Inside the wall
- FSA consultation on PDMR transactions – issues for brokers
- Significant changes to the listing regime
- The end of "no names" calls to the UKLA? And the first edition of Primary Market Bulletin
- AIM Regulation and directors participating in a secondary fundraising
- QCA remuneration committee guide for smaller quoted companies
- Kay Review of UK equity markets – interim report published
On 5 March 2012, the Quoted Companies Alliance ("QCA") published its Remuneration Committee Guide for Smaller Quoted Companies (the "Guide").
The QCA notes that many remuneration schemes are similar, which suggests that remuneration committees may not be paying enough attention to the particular circumstances of their companies. The Guide is therefore intended to assist smaller UK quoted companies in developing a bespoke approach to remuneration, with the aim that remuneration schemes for key management and executive directors are set in a fair and reasonable manner.
The Guide stresses that the approach adopted by the remuneration committees must reflect the specific conditions and the business strategy of the company, with particular emphasis on the need to keep the remuneration structures flexible and to align them with the company's policy on risk management.
The Guide sets out in some detail a number of factors which the QCA recommends for consideration in relation to the overall remuneration policy of the company and the specific elements of pay. Whilst most of the recommendations seem to reflect accepted best practice, some of them go well beyond the current market norm, such as:
(i) establishment of share ownership guidelines for executive directors and senior management;
(ii) annual bonus deferral;
(iii) clawback provisions in the case of misstatement/misconduct or if a director's employment terminates within three years of an award; and
(iv) ex-gratia payments and transaction bonuses being seen as improper unless exceptional circumstances exist and shareholders have expressed their support.
The QCA acknowledges that the concepts contained in the Guide are not prescriptive, which implies that they may not be suitable for all organisations and should be tailored as necessary.
The Guide further highlights the need for, and the benefits of, meaningful and ongoing communication with shareholders, in particular institutional investors. It also sets out suggested steps for gaining shareholders' support, which the QCA believes to be more likely if the company provides bespoke explanations for the rationale of the remuneration policy.
Finally, the Guide advises on the composition and powers of the remuneration committee, stressing the need for all members of the committee to be independent. The QCA believes that even if the chairman of the board is able to show the necessary independence, he or she should not chair the remuneration committee. It is recommended that the remuneration committee should have formally delegated authority to set executives' remuneration. Where this authority is limited to making recommendations, such recommendations should be followed with no adjustment.
The Guide is available for purchase on the QCA's website
Aleksandra Cison is a Solicitor in the Corporate Group of Field Fisher Waterhouse LLP in London.