The Executive Remuneration Games: updated guidance

The GC100 and Investor Group have recently published updated directors’ remuneration reporting guidance to reflect the changes in practice since their original guidance in 2013 and the voting patterns of the 2016 AGM season.  The large majority of the FTSE100 will be putting new remuneration policies to a shareholder vote next year on the expiry of the 3-year policies they put in place in 2014.  The amended guidance should (hopefully!) help companies avoid the negative shareholder votes that were so in evidence this AGM season, as we reported in our review of the 2016 directors’ remuneration reports (DRRs) of the FTSE100.

Following on from Team GB’s great success in the Olympics, we thought we would set out what the coaches (the guidance) suggest are the extras that Team GB PLC needs to focus on in order to ensure favourable scoring from the judges (shareholders) next time round.

High Jump:

There is a much stronger steer on the disclosure of performance targets relating to incentives.  The bar should be set high – “any decision to rely on the commercial sensitivity carve-out should not be taken lightly”.  For short-term incentives (usually annual bonuses), in the 2016 DRRs there was near-universal reliance on commercial sensitivity in order to explain non-disclosure of annual bonus targets.  In only a very few cases were there any company-specific circumstances disclosed to explain why the performance measure or target in question was considered commercially sensitive.  The coaches remind us that the judges expect retrospective disclosure of these targets, with an indication of when disclosure will be made.  Some members of Team GB PLC indicated that it may never be appropriate to disclose their short-term performance targets.  In the 2016 DRRs, targets for performance conditions for long-term incentives were almost universally disclosed prospectively.


The coaches emphasise that the policy table should include an indication of the weightings of each performance measure or groups of measures which may be expressed as a range, for both short-term and long-term incentives.  In the 2016 DRRs, Team GB PLC was pretty good at this discipline.


Virtually all of Team GB PLC put in place their first remuneration policies in 2014.  A significant number (13) of FTSE100 companies put forward a new policy early, in the 2016 AGM season.  The coaches stress that putting in place a new policy mid-cycle requires a coherent rationale to be put to the judges as to the reasons for doing so.  This seemed to be a big ask in some cases in 2016; two companies didn’t even get the simple majority vote in favour required.


The judges, as always, will be concentrating on long-term performance and Team GB PLC must demonstrate the link between the overall remuneration packages of the directors and the company’s strategy.  The remuneration committee chairman’s statement should set out clearly the linkage between the company’s remuneration policy and its annual strategic report.  A notable feature of Team GB PLC’s DRRs this year was the general beefing up of the remuneration committee chairman’s letter.


An easy win, this.  The coaches recommend that even if a company made no payments for the loss of a director’s office or payments to ex-directors, a simple negative statement to that effect should be made.

Subjective scoring:

The coaches caution against remuneration committees applying their discretion in an upwards-only direction.  It may be true that on a mathematical or qualitative basis, performance criteria have been satisfied.  However, a member of Team GB PLC will be in danger of receiving votes against where payments are based simply on the tariff without any subjective analysis of the overall performance of the company, if that has been lacklustre.  The key is to make sure that the “outcome balances management performance and the shareholder experience”.


The coaches clarify the fact that not only must the future policy table specify the maximum that may be paid in respect of all aspects of remuneration (on which, judging from the 2016 DRRs, Team GB PLC have a way to go yet), but the maxima must be stated for each individual director, expressed as either monetary values or percentage of salary.


The judges will mark Team GB PLC down for choosing too narrow a comparator group (for example, just senior executives) for the disclosures relating to the percentage change across the year in salary, benefits and bonus paid to the CEO as compared to the average of these percentages for other employees.  From our review of 2016 DRRs, the choice of the employees used for the comparator group is something that shows a wide degree of variation across the Team and it will be interesting to see how it responds.

Yellow cards:

Where a member of Team GB PLC has received a significant percentage vote against a remuneration resolution, it must disclose the reasons for this (if known) in the DRR and say what it has done to appease the judges.  If the reasons are not known, the company must say what it has done to try to find out the reasons.  In the 2016 season, there was a mixed response to votes against.  Of the nine companies that had a significant vote against, only a few took the trouble to speak to investors early enough (before the AGM) to be able to put the reasons at the bottom of the announcement of the votes; the others didn’t comment on the vote against.

If companies manage to incorporate these changes to the guidance, with a bit of luck, next AGM season will see more medals and fewer thumbs down for DRRs.

Better late than never: what to do if you receive a share schemes penalty notice

HM Revenue & Customs (HMRC) are in the process of issuing penalty notices for the late filing of share scheme annual returns.   This will happen in any case where a scheme has been registered online with HMRC but an annual return for that scheme was not filed online with HMRC by the deadline of 6 July 2016.  The penalty is £100.

Among the teething troubles that surrounded the introduction of online filing in 2015, there were many reports of companies registering share plans wrongly; for example, because the name or type of the plan was entered incorrectly.  This was a pain because there was no ability to make corrections once the online form had been submitted.  You had to start again, entering the correct details of the scheme as a new plan, to which HMRC gave a different unique reference number.   However, you were supposed to tidy up by closing the incorrect scheme and also submitting a “nil return”for that scheme on or before 6 July.  You can bet your mortgage that a good number of the penalty notices relate to incorrectly-registered plans that weren’t closed and/or didn’t have a nil return filed.

If you correctly registered a plan online, but there just happened to be no reportable events (for example, grants or exercises) under that plan in the 2015-2016 tax year, you still need to submit a nil return for that year and every year during which the plan is outstanding.

Of course, if you have a properly-registered plan and the annual return was overlooked, make sure you correct the situation in good time, because a further £300 penalty will be due if the return is still outstanding at 6 October 2016.  If you have a “reasonable excuse” for the annual return not being made in time, you can appeal against the penalty, but the examples are limited to serious situations – “I was on holiday” won’t cut the mustard!



Second bite: Court decides a pension deficit for service company employees must be paid by the trading company

Many group companies operate a service company to employ staff and second them to other group companies. These arrangements are often not fully documented, particularly in groups who see themselves as one business. However, this can cause issues on an insolvency, as shown recently in the case of MF Global UK Ltd (In Special Administration), Re [2016] EWCA Civ 569.

 The MF Global Group carried on a brokerage business. The main trading company was MF Global UK Limited (the trading company). All relevant employees were employed and supplied by MF Global UK Services Limited (the service company). The service company did not trade, but it charged the trading company for salaries and ongoing pension contributions to a defined benefit scheme.

There was no written contract between the service company and the trading company. The only written agreement was between the service company and the group’s holding company. This agreement said that the holding company must ensure that the trading company paid “payroll costs” to the service company.

The main MF Global Group companies went into administration in October 2011. This triggered a debt payable by the service company of over £35 million under Section 75 of the Pensions Act 1995. The trading company and the service company asked the Court to decide who was liable for the pension deficit.

The service company argued that there was an “implied” contract between it and the trading company. It further argued that the trading company was liable to the services company for the pension deficit under this contract.

The trading company argued that there was no implied contract between it and the service company, since it might have paid payroll costs for services for a number of reasons. These included its relationship with the holding company.

In 2015, the High Court decided in favour of the service company. However, the trading company appealed the decision.

Upholding the 2015 decision, the Court of Appeal decided that:

  • there was an implied contract between the service company and the trading company. Given the level of overall staff costs (some US $330 million per year), there must have been a contractual agreement.
  • the contract required the trading company to pay the pension deficit. Otherwise, the service company would have been taking on a potential debt that it would never have been able to pay. Further, the correspondence and accounting documents said nothing to cast doubt on the view that the trading company was to pay the pension deficit.

This decision arose from specific facts and other group arrangements may have been treated differently. Further, there is no suggestion that the decision would extend to a secondment arrangement between companies not in the same group. However, where there are intra-group arrangements, any contracts should carefully identify which company would be liable for a pension deficit.

Board stiff? – employee representatives on UK plc boards

As we reported previously, one of Theresa May’s promises at the hustings for party leader was to introduce employee representation on the boards of big businesses, as part of the drive to control executive remuneration.

The feasibility and potential pitfalls of this idea are considered in this thought-provoking post on our Employment Law Worldview blogsite.




Less is more: further consultation on simplification of taxation of termination payments

In a previous post, we were less than wholly welcoming to the Government’s proposals for the simplification of the tax and NIC treatment of payments in the context of the termination of employment.  The proposals were put out to consultation in July 2015 and a report on the responses, launching further consultation on the draft legislation, was published yesterday.

Thankfully, the dodgy proposals – that there should be a separate exemption from tax and NICs for payments in respect of wrongful or unfair dismissal and that the main exemption for termination payments would only be available in the case of statutory redundancy – have been kicked into the long grass by a majority of the 109 responses.  Best draw a veil over those then ….

The stated aims of the reforms are to make the taxation of termination payments:

  • simpler for employees and employers to understand and operate;
  • clearer and more certain, so as not to add to the employee’s burden at a difficult time;
  • fairer (so that the fat cats who can afford advice don’t get better tax treatment than the lowly-paid); and
  • not unduly expensive for the Exchequer.


Currently, contractual payments in lieu of notice (PILONs) are taxable, but non-contractual PILONs aren’t, Around two-thirds of respondents said that removal of the distinction would reduce confusion and complexity, so it is proposed that under the new rules all PILONs will be taxable.

Other termination payments

Again, these can be divided into contractual payments, which are currently taxed and non-contractual ones, which aren’t.  Responses in this case were much more evenly split.  A slight majority felt that the distinction was well understood – any contractual or customary payments (such as holiday pay) are ‘from the employment’ and should be taxed, whereas any payments relating to the loss of employment, for example statutory redundancy pay, should not.  The killer was respondents pointing out that if the distinction was removed, many legislative changes would be required to ensure that there was no manipulation of the rules.  As this would increase complexity, the Government has decided to retain this distinction.  However, only payments directly related to the termination will be exempt – reference to the employment contract and other terms and conditions will be required to establish which payments are contractual and therefore taxable.  For any non-contractual termination payments over £30,000, the excess will be taxable.


Currently, termination payments above £30,000 are subject to income tax but not NICs.  There was support from respondents for alignment of tax and NICs, both in this case and generally, and unsurprisingly the Government has plumped for requiring that from April 2018 NICs are to be paid on all termination payments that are subject to tax.

This will add considerable expense to the cost of terminating senior employees.  As companies look to limit the price they pay to senior executives for failure, this adds another 13.8% to the reasons to keep these payments to a minimum.

The £30,000 threshold

Respondents were strongly against the suggestion that the amount of the exemption should be based on length of service, not least because it would be discriminatory against young and part-time workers and those who have a career break.  The lack of support for reducing the threshold and the fact that currently most employees don’t have to pay tax and NICs on their termination payments means the Government is prepared to allow this to remain as is.


There was generally strong support for the current exemptions from tax on termination payments for certain categories of employees, and in particular on payments made in respect of legal costs for advice on termination settlements, to be retained.  However, in the cause of fairness the Government has chosen to remove the “outdated” Foreign Service exemption for payments made from April 2018 and has also clarified that the exemption for payments made on termination of employment due to injury does not extend to injured feelings.


The consultation document sets out draft legislation and as “this is a complex area” welcomes feedback on whether it “will achieve the intended policy effect with no unintended effects” by 5 October to



Employee benefits: ensuring your insurance is up to date

This week sees the implementation of changes to insurance disclosures which, coupled with an upcoming increase in insurance premium tax, mean that the time is right to review your employee benefit insurance policies.

The Insurance Act 2015 comes into force on 12 August 2016 and applies to new policies as well as variations to existing policies. In the context of employee benefits, there are a number of areas where insured employee benefits are likely to be affected, for example medical / health insurance. The Act will have a significant impact on how policies are brokered, for example, by introducing a duty of ‘fair presentation’ on policyholders. Employers will need to understand their duties under the new legislation and change their practices accordingly.

This comes at a time when the standard rate of insurance premium tax will shortly rise to 10% – a significant increase on the 6% rate that was in place last year. The growing cost of insurance cover is encouraging some employers to consider corporate healthcare trusts as a cost-effective alternative.

Excepted Life Policies, which fall outside the registered pension scheme regime so have tax advantages particularly for higher earners, are also growing in use.

These changes are inspiring many companies to revisit their insured benefits to ensure that they continue to offer value for money and remain compliant. If you need any help in considering this further, please contact your normal Squire Patton Boggs pensions contact.

FASt action required by qualifying pension plans

Earlier this year it was announced that the UK’s Financial Assistance Scheme (“FAS”) would close to applications from 1 September 2016.

This does not affect pension plans that are currently progressing through the notification and qualification process or pension plans that have already qualified for assistance. However, any qualifying pension plans that have not yet started the process need to move quickly as they now have less than a month to make a notification to the FAS.

It’s fair to say that when the creation of the FAS was first announced on 14 May 2004, no one expected that it would still be accepting applications in 2016. This may, in part, be explained by the fact that the FAS’s scope has been extended considerably over the years. In its annual report and accounts for 2015/16, the Pension Protection Fund (“PPF”), which took over the management of the FAS in 2009, reported that the number of pension plans which had completed the qualification process was 1,068 with some 155,000 members entitled to assistance from the FAS.

Pension plans which may qualify for the FAS are under-funded defined benefits plans which either:

  • commenced winding up between 1 January 1997 and 5 April 2005 where the sponsoring employer is insolvent and cannot meet the funding shortfall; or
  • commenced winding-up after 5 April 2005 and are not eligible for the PPF because the sponsoring employer became insolvent before 6 April 2005.

FAS assistance is provided to members of qualifying pension plans by a top-up to the reduced level of benefits which would otherwise be provided to the member on the winding up of the plan. The top-up brings the benefits broadly up to the level of the compensation that is payable under the PPF, i.e. 90% of the member’s pension subject to a cap.

The adequacy of the compensation payable under the PPF has been challenged in the Grenville Holden Hampshire case recently heard in the Court of Appeal. In this case, the application of the cap on the PPF compensation payable and the limited scope of increases to compensation payments resulted in the member concerned receiving less than 50% of the pension he had been receiving from the pension plan before the plan entered the PPF. The PPF was established by the UK government to comply with its obligations under the EU Insolvency Directive and the case concerns whether the level of PPF compensation is adequate to comply with those obligations. The Court of Appeal has referred the matter to the European Court of Justice so this question remains unanswered at present. In addition, it remains to be seen how Brexit might affect this case and also what impact, if any, this case might have on the level of top-ups provided by the FAS.

Remuneration at 2016 AGMs: how did the FTSE 100 do?

Aside from the few companies with later year-ends, the last couple of AGMs of the FTSE 100 were held last week, so now would seem an opportune time to summarise the outcomes and trends from the 2016 season.

One hallmark of the season was that it appeared to be a re-run of the “shareholder spring” of 2012.  This was no doubt fuelled by the continuing media clamour about the quantum of directors’ remuneration in these companies, presumably based mainly on the bald disclosures in the “single figure table”.  Shareholders’ (non-binding) votes against the implementation of remuneration policy exceeded 20%, a rough approximation of the “significant” threshold, at nine AGMs.  The issue seems not only to have been the size of rewards, but in several cases specific red rags, such as “golden goodbyes” in the form of retained LTIP awards for leaving directors. 

And it wasn’t only the implementation vote on which some companies came a cropper.  Virtually all FTSE 100 companies put in place their first remuneration policy at their AGMs in 2014, so the majority will have to renew these policies next year.  However, 13 companies have asked shareholders to approve a new policy this year, taking pains to carry out prior consultation with major investors.  Most of those companies had a smooth ride in the vote, but there were two whose new policies didn’t even get the simple majority required to pass.  Another two had votes against of more than 20%.

It may be that shareholders were generally intending to mark companies’ cards in advance of the slew of new policies that will be put up next year.  However, there was some bewilderment expressed by companies who had consulted but then had significant votes against, for example: “The fact is that many of our shareholders agreed with us on this [setting performance targets] – others didn’t.  Attitudes towards what is appropriate remuneration constantly evolve and what is right one year isn’t necessarily right the next.”

On the plus side:

  • there has been significant movement in the last year or so in disclosures with respect to the targets applying to annual bonuses.  Although there is virtually blanket reliance on “commercial sensitivity” precluding disclosure of targets prospectively, the great majority of companies now disclose retrospectively;
  • malus and clawback are now commonplace for share plans (slightly less so for cash bonuses); and
  • the great majority of the FTSE 100 have by now adopted longer periods between award and release of shares under incentive arrangements.  Only a few years ago the norm was for release after a three-year vesting/performance period. However, the approaches for imposing this longer period are many and various, some examples being a performance period of more than three years, a holding period after vesting at three years or the staged release of shares on the third, fourth and fifth anniversaries of an award.

So what can we say about the prospects for next year?  As we reported in a previous post, the prime minister has pledged to make the vote on the implementation of a company’s remuneration policy binding.  The final report of the Executive Remuneration Working Group (ERWG), set up under the auspices of the Investment Association (IA) and published last week, notes the “concerns over the legal and operational issues” arising from this proposal.  It remains to be seen how this will pan out.

Companies’ sentiments about finding it difficult to satisfy shareholders are echoed in the ERWG report: “there is also a perception that investors are sometimes not being clear about their views to companies” and “companies also complain that they receive different views from the investment managers and governance teams within the same investment house”.

It is not clear how the size of directors’ pay packages is to be reined in. Although quantum was not part of its remit, the ERWG makes two recommendations on this front.  First, remuneration committees and consultants should guard against the inflationary effect of “chasing the median” – this has always been an issue.  Secondly, a company should justify the maximum pay-out under its remuneration policy by reference to both external “relativities” and internal ones, such as the multiple of the average employee’s pay represented by the remuneration of the CEO.  This echoes the stated intention of Prime Minister Theresa May to require this ratio to be disclosed in a company’s accounts.

The ERWG’s recommendations will be incorporated at least in part into the IA principles of remuneration (formerly the ABI guidelines).  Companies will have to consider whether they wish to take advantage of the greater flexibility recommended by the ERWG and submit a remuneration policy in 2017 that doesn’t include the near-ubiquitous LTIP, provided that approach would serve the company better.  The group hopes that simpler remuneration structures without performance conditions will lead to more certain outcomes for executives and cause them to place more value on their rewards, which in turn “should then lead to a reduction in overall remuneration levels”.  Given that companies that have submitted new policies this year after shareholder consultation have had mixed fortunes when it came to the AGM vote, one might be forgiven for thinking that it would be a brave remuneration committee that would formulate a new policy outside the tried-and-tested formula of salary/bonus/LTIP award ….


21st century trusteeship – bringing UK pension plan governance up to date

On 22 July 2016, the Pensions Regulator published its 21st Century Trusteeship and Governance discussion paper.   The Regulator is acutely aware that boards of occupational pension plans carry out a very important and difficult role. Trusteeship is voluntary and, in aggregate, trustees are responsible for managing £1.8 trillion of assets on behalf of 32 million members and their role is becoming increasingly challenging in the face of fast-paced changes and growing complexity.

The Regulator acknowledges that although some pension plans have good governance in place, not all trustee boards are meeting the expected standards. For example, although almost 50% of trustee boards surveyed meet at least quarterly, 7% of boards meet less frequently than annually or have never met. The paper continues the debate on what the Regulator (and the wider pensions industry) can do to better support trustees, drive up trusteeship standards and improve governance.

The Regulator carried out over 800 in-depth interviews with trustees from defined benefit (DB), defined contribution (DC) and hybrid pension plans with at least 12 members. In addition, the Regulator observed trustee boards and entered into discussions with key industry stakeholders, trustees and industry experts.

From its research, the paper outlines key findings and challenges. The Regulator has asked for input from the pensions community by 9 September, on a number of key questions to help mould its future regulatory policy decisions, including:

  • Should there be any barriers to entry for professional trustees, i.e. should all professional trustees be required to be qualified or registered by a professional body?

The research highlights the fact that pension plans with only professional trustees are more likely to have better governance arrangements and that professional trustees can improve the effectiveness of trustee boards, bringing knowledge and expertise, commitment and impartiality. Interestingly, the data suggested a trend in the ‘professionalisation’ of trustees, with the proportion of pension plans without a professional trustee decreasing in the last 5 years.

Unlike lay trustees, professional trustees are remunerated or hold themselves out as experts and so higher standards are expected from them. However, there is currently no barrier to entry into the market – anyone can become a professional trustee and unlike other professions, there is also no independent body regulating standards. Although many offer significant benefit to trustee boards and pension plan governance, the Regulator notes that it has also come across a few who are clearly unfit for the role. The Regulator seeks industry views over whether greater scrutiny and safeguarding is required.

  • How can the Regulator ensure that trustees are aware of, understand and are able to apply the Trustee Knowledge and Understanding (TKU) framework?

Over 50% of all pension plans surveyed and 73% of small plans had not documented or formally assessed trustees’ learning needs in the last year. Concerningly, trustees of 1 in 5 pension plans were either not familiar with the TKU code or did not know whether their non-professional trustees had the level of TKU necessary to meet the code standards.

Possible solutions offered by the Regulator include making it mandatory for trustees to complete and pass the Trustee toolkit within 6 months of being appointed. Alternatively, a 6 month probationary period could be introduced for new trustees, with the appointment being formalised once the trustee has demonstrated they have sufficient TKU. The Regulator also seeks views over whether a more formal approach, such as a Continuous Professional Development framework could help ensure that training governance is better embedded in trustee boards.

It will be interesting to see how the pensions industry responds to this discussion paper. Whilst a drive to improve standards is to be welcomed, we would caution against introducing onerous requirements that would serve to discourage lay trustees from putting themselves forward for selection.

If you would like to discuss the Regulator’s paper, please get in touch with your usual Squire Patton Boggs contact.

Game-changer on boardroom pay in the UK?

The Executive Remuneration Working Group (ERWG), set up last year under the auspices of the Investment Association, has published its much-anticipated final report on simplifying and re-aligning executive pay in the UK.  The ERWG hopes that this report will have a major influence on how executive remuneration in FTSE companies is structured.

The remit of the ERWG was to conduct an independent review of executive remuneration in order to find workable solutions to the problems inherent in the current system of executive remuneration, which is frequently said to be broken.  It reported on an interim basis in April of this year and has followed that up with round-table discussions prior to publishing its final report.

The ERWG’s core recommendation remains the same.  It concludes that the current “one size fits all” approach to executive remuneration (i.e. salary/benefits/annual bonus/LTIP) simply cannot, almost by definition, be suitable for all companies.   Remuneration committees should have the freedom to move away from it.  In fact, the ERWG describes greater flexibility as “the” solution to “the” problem with executive pay!

The difficulties that stand in the way of that change are acknowledged and the ERWG has made nine further recommendations designed to re-establish trust and strengthen relationships with shareholders.  None of these additional recommendations are particularly novel and it remains to be seen whether they and the other guidance offered will be sufficient to coax remuneration committees out of the perceived safe harbour of the existing model.  The clear acknowledgement that change needs to come from both sides is an encouraging output from the working group.  Having said that, and it comes as no surprise, there is a renewed emphasis on disinfecting the relationship between companies and investors through increased transparency.  The ERWG pulls no punches in asserting that without greater transparency (amongst other things), there may not be sufficient trust to enable companies to explore more bespoke solutions for the compensation structure of executives.

The ERWG has recommended two possible models as alternatives to reliance on traditional LTIPs (although this is not intended to be an exhaustive list).  These are:

  • the deferral of bonuses into shares; and
  • restricted share awards vesting in stages over 3-5 years (with no performance conditions).

At the interim stage there was a third model (performance on grant) but that has been deemed to be unworkable due to the long time frames involved.  The ERWG declined to add market value options to this list.  Where LTIPs are used, the model of a three-year performance period followed by a further two-year retention period is endorsed.  Guidance is offered on a number of inter-related issues including shareholding guidelines, prevention of rewards for failure and the discount factor when moving from LTIP awards to restricted share awards.  A discount factor of 50% is endorsed as a basic starting point (i.e. other factors aside, the value of restricted shares awarded would normally be half the value of shares that would otherwise have been included in an LTIP grant under an existing plan).

Interestingly, shareholders involved in the ERWG’s discussion groups did not request greater consultation on pay matters.  In fact, they would like to reduce the time spent on this area through more effective and timely consultation – which loosely translates into a request to focus on the key issues and not to bother consulting on everything.  For good measure, the ERWG makes the point that just because there has been consultation there won’t necessarily be support for the conclusion.

The ERWG noted that its remit was to find ways of simplifying executive pay rather than reducing it.  However, the two are not unrelated and the detailed recommendations touch on process and disclosure in this area.  In the past, significant changes in the structure of executive pay have often resulted in overall increases in remuneration and it will be interesting to see if the recent pressure exerted by shareholders during the 2016 FTSE100 AGM season prevents that from happening again.  In particular, if there is a move away from LTIPs how will the compensating increases in other remuneration elements be portrayed in the media?

Theresa May has promised to have another go at tackling excessive remuneration through more legislation.  The ERWG has not had enough time to consider these proposals in detail, albeit its members do not appear to be convinced.  They note in particular that the change from advisory to binding votes is likely to encounter similar problems to those that resulted in the watering down of the original proposals from the Coalition Government in 2010.  Mrs May’s ideas are about increasing stakeholder influence in the governance system in the hope that it will bring boardroom pay under tighter control.  That rather indirect approach contrasts with the ERWG proposals, which are intended to have a much more direct effect on executive remuneration by promoting changes to the remuneration policies that most FTSE companies will put to their shareholders for renewal in 2017.

The Investment Association will now be considering what changes are needed to its guidelines on executive remuneration as a result of the ERWG report but most companies that are due to put a new remuneration policy to shareholders for approval in 2017 will, no doubt, already be working out whether they should be considering significant changes to their policies.  The ERWG has stressed that remuneration committees should be placing less reliance on remuneration consultants, but it is hard to see this type of decision being made without heavy input from external advisers.

As the saying goes, the proof of the pudding will be in the eating, but we will need to wait until 2017 to see how many remuneration committees have the stomach for such radical change.