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Remuneration reporting: Is it working?


The FRC has found that FTSE 350 companies are disclosing more information on remuneration. But despite this, there remains a lack of detail on the application of the Code principles and provisions. Julia Penny investigates. 

28th May 2021
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How much directors get paid and why, particularly in big, listed companies, always attracts attention. Whether its concerns about so-called fat cat directors, bonuses being paid out even when it appears that there are performance problems, or just understanding complex remuneration packages, disclosure is key. This is how the company can explain to shareholders how their directors are being incentivised and why they deserve what they get.

New research conducted by the FRC and the University of Portsmouth has found that improvements in disclosures are being made. FTSE 350 companies are disclosing more information on remuneration, with a majority linking individual rewards to strategy and long-term performance. Despite this, there is still a lack of detail on the application of the Corporate Governance Code (the Code) principles and provisions in remuneration disclosures.

Changes to the Code made in 2018 were designed to encourage remuneration policies that are structured and clearly linked to the strategic objectives of the company, rewarding executive directors who contribute to the long-term success of the company. These key changes were:

  • More demanding criteria for remuneration policies and practices;
  • Clearer reporting on executive remuneration, how it delivers company strategy, long-term success and its alignment with workforce remuneration;
  • Directors exercising independent judgment and enabling the use of discretion to override formulaic outcomes;
  • Taking accounting of wider circumstances;
  • The remuneration committee chair should have served on a remuneration committee for at least 12 months.

The research looked at two key areas. Firstly, to what extent were the various remuneration disclosures envisaged by the Code made in 2019 compared to 2017 (before the new Code took effect). Secondly, the research assessed the level of dissent for revised directors’ remuneration policies and the companies’ actions when this happened.  

Remuneration disclosures

There are a number of Principles and Provisions in the Code relating to directors’ remuneration which the research addressed. These were Principles P and E, and Provisions 33, 36, 37 and 40. Overall the research found that disclosure of items within these areas had increased, as might be expected given the new requirements in the Code. However, the overall trend did not always match up to the findings on individual sub-items within the Code. For example, there was no change in the extent of disclosure in relation to provisions that would enable companies to recover or withhold sums or share awards.  

The research also found that many of the disclosures were boilerplate, merely reflecting the wording in the code, without any detail added as to how the company specifically dealt with the item in question. This point is perhaps the one which is most important for directors, remuneration committees and others involved in the annual report disclosures to consider. It is not sufficient to say that you are doing something, you need to show or explain how it is being done.

Principle P of the Code sets out that:

‘Remuneration policies and practices should be designed to support strategy and promote long-term sustainable success. Executive remuneration should be aligned to company purpose and values, and be clearly linked to the successful delivery of the company’s long-term strategy.’

The overall disclosure score in respect of this Code principle was found by the study to be 94%, as against 81% prior to the changes. However, the research found there was little specificity to the company and that there was more improvement with respect to disclosures regarding the alignment to company purpose and values than in the other two areas included in Principle P.   

Provision 33

This requires that the remuneration committee should review workforce remuneration and policy, align incentives and awards with culture and take these two points into account when setting executive remuneration. Disclosures have increased greatly from an average of 46% to 84%. However, explanation of how the alignment of incentives and rewards with culture is achieved is still relatively low at 74%.

Principle E of the code states that:

The board should ensure that workforce policies and practices are consistent with the company’s values and support its longterm success. The workforce should be able to raise any matters of concern.’

The research found that although disclosures went from 26% to 60%, the majority of the sample still do not report evidence of workplace policies and practice being consistent with company values and long-term success. On a more positive note, adherence to the requirement that the workforce can raise any matters of concern has risen from 23% to 64%. This is definitely a move in the right direction, as often where there are issues, such as a company failing or fraud being identified, it is found that employees previously had concerns. Ensuring there is a route for them to raise these concerns is therefore vital in receiving these early warning signals. Once again though, the details of how compliance with the principle was achieved was on the light side.

Provisions 36, 37 and 40

Similar patterns in the increase in adherence were seen with the analysis of:

  • Provisions 36, focussing on long-term performance (53% to 76%);
  • Provision 37, focussing on discretion and clawback (75% to 91%); and
  • Provision 40, focussing on the factors that the remuneration committee should address, such as clarity, simplicity, risk etc, when determining remuneration policies (71% to 88%).

Each showed an overall increase, but with some areas less well adhered to than others when looking at the detail. Again too much boilerplate language detracted from the usefulness of the disclosures.

Shareholder dissent

The research considered a total of 129 companies, among which 12 companies had a level of dissent in shareholders voting on remuneration policy of 20% or more. Unfortunately, due to Covid preventing most face-to-face AGMs, it was not easy to establish the sentiment behind the dissent. Other voting patterns seemed to suggest it was often a more widespread dissatisfaction with the company than just the remuneration policy, with 9 out of the 12 companies reaching similar levels of dissent on other shareholder votes.

Where a company has a significant level of shareholder dissent it should take various actions (Provision 4), including explaining how it will deal with the situation and publishing an update statement. However, the actual explanations or follow up statements seemed sometimes to focus on positive interpretations of the situation, or why the directors were right in the first place. Others, as the Code intends, seemed genuinely concerned and wanted to truly understand the concerns of shareholders and seek appropriate remedies.

Areas for improvement

Whilst the research clearly showed improvements in remuneration disclosures, there are still areas requiring further progress including:

  • Ensuring all elements of Principles and Provisions are covered in disclosures;
  • Explaining how the risks of excessive remuneration are mitigated, rather than just saying that risks exist;
  • Showing, not only how awards are linked to strategy and long-term performance, but also how they avoid rewarding poor performance;
  • Improving the clarity of evidence regarding engagement with the workforce;
  • Explaining why non-financial KPIs were chosen or how they were formulated;
  • Avoiding boilerplate language;
  • Companies in the FTSE 250 had lower degrees of adherence with Principles P and E than FTSE 100 companies, so the former could improve on this;
  • Some sectors were noticeably worse at compliance than others, particularly Telecoms, Real Estate, Energy and Basic Materials and therefore have greater room for improvement;
  • Better disclosure and explanation of actions when there has been significant shareholder dissent.


The requirements of the Code with respect to remuneration are extensive and can take a great deal of thought to fully implement. It is important that remuneration committees and those preparing annual reports continue to seek improvements and ensure that if they are not complying with an element of the Code this is done with appropriate consideration and properly disclosed. Similarly, if claiming compliance, it is important to provide useful disclosures to demonstrate this. A critical review against the requirements of the Code each year is a useful way to consider whether both actions and disclosures are appropriate, but this takes time so make sure this is planned into the remuneration committee’s agendas.


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