'Directors' know how' is a monthly article which highlights key rule changes, proposed changes and market updates so that you know what is coming down the track.
The IMA's issues revised Principles of Remuneration
The Investment Management Association (ABI) has published revised Principles of Remuneration for 2014. These were formerly issued by the Association of British Insurers (ABI), of which its Investment Affairs divisions has now merged with the IMA. The Principles set out the IMA's views on the role of shareholders and directors in relation to remuneration and the manner in which remuneration should be determined and structured.
The key change is a statement that the IMA does not support the use of allowances as fixed pay (on page 10). However, the IMA also has issued a covering letter to Remuneration Committee Chairmen, highlighting some additional points, which include:
- Amounts and gearing of variable pay – Basic salary increases should not exceed inflation or the increase for the general workforce.
- Threshold performance – The IMA is concerned about the absolute amounts payable for the achievement of threshold performance.
- Length of performance/holding period – The performance period for long-term incentives should be no less than three years and preferably longer.
- Retrospective changes to performance conditions – The IMA does not support any retrospective changes to performance conditions.
- Engagement process – The IMA is encouraging companies to engage with their investors on their proposals for the AGM when they are in draft form.
- Retrospective disclosure of annual bonus targets – Remuneration Committees should retrospectively disclose the performance range for annual bonus targets as well as the performance actually achieved.
- Public assurances – When companies have given public assurances on the operation of their remuneration policies, these should be included in the next remuneration report.
- Disclosure of the policy report – This should be included in the Remuneration Report (although not required under reporting regulations).
FRC publishes annual Corporate Reporting Review
The Financial Reporting Council (FRC) recently published its Corporate Reporting Review 2014, which provides an overview of the corporate reporting review activities of the FRC for the year ended 31 March 2014. Key issues that may be of interest to small and mid-size quoted companies include:
- Poor quality accounts produced by smaller listed and AIM companies – The FRC notes that there continues to be a higher number of poorer quality accounts produced by smaller listed and AIM companies. The FRC highlights their current project on Smaller Company Reporting, noting that initial findings from the FRC's recent review activities indicate that smaller listed and AIM companies often struggle to account for complicated transactions, such as innovative capital products or derivatives.
- Areas of corporate reporting commonly raised with companies – The following areas were commonly raised with companies: Business reviews/Strategic Reports, pensions, exceptional and other similar terms, critical judgements, clear & concise (cutting clutter), Principal risks and uncertainties, accounting policies (particularly revenue), impairment, taxation and cash flow statements.
- New standard on revenue (IFRS 15) – The FRC is encouraging companies to report on the likely effect of the new IFRS 15 standard (due to come into effect from 2017) as soon as this is reasonably estimable, particularly if a significant impact on the company's accounts and reports is anticipated.
QCA responds to ESMA's consultation on the Market Abuse Regulation
We submitted our response to The European Securities and Markets Authorities' (ESMA) recent consultation on the technical standards and advice on the Market Abuse Regulation. Our key area of focus was on its proposed fields for inclusion in insider lists, which we noted were far too onerous and would add significant increased costs to quoted companies.
QCA responds to the FCA's consultation on dealing commissions
We submitted our response to the Financial Conduct Authority's consultation on banning the use of dealing commission to pay for research. We noted that the proposals put forward will decrease the amount of research available on small and mid-size quoted companies and negatively affect their ability to raise finance, grow and create jobs.