February 2012

Executive Compensation Market Watch - January / February 2012

By Katharine Turner and Richard Latham

Governance News

Further insights on the UK Government’s initiatives

We covered the recent policy statement by Vince Cable on the UK Government’s plans for greater transparency on directors’ remuneration and greater shareholder voting powers in a previous special edition of Market Watch. From subsequent conversations with government, we understand that many of the underlying details have yet to be developed and that it will be Spring 2014, at the earliest, when the first disclosures and votes are made under the new regime. Read more.

RREV voting advisory reports

The voting advisory reports now being issued by RREV include four summary pay charts that show, for the highest paid director, (1) the “expected value” of their arrangements vs. the “realised” value; (2) total bonus earned vs. company profit, and as compared to peers, (3) salary and bonus earned vs. TSR growth, and as compared to peers, and (4) salary level compared to peers. We have been told by RREV that these charts are for information only. Read more.

Establishment of High Pay Centre

A new think tank on high pay has been established by Deborah Hargreaves (former business editor of the Guardian) to continue the work of the High Pay Commission. It is being funded by the Joseph Rowntree Foundation Trust and “will look at issues that are crucial to the debate on responsible capitalism, including whether shareholders are capable of holding companies to account, how far employees should be involved in corporate decision-making and high pay beyond our boardrooms”.

FS Governance News

Government consultation on new below board disclosure rules for banks

While the Government does not appear to be pursuing “below board” disclosure for general industry companies, it has published a consultation document on mandatory requirements for large banks operating in the UK to publish pay details for their eight highest paid senior executive officers, below the board. The closing date for submissions is 14 February 2012.  Read more.

FSA discussion paper on implementation of the Alternative Investment Fund Managers Directive

At a European level there are various initiatives to extend the new regulatory regime for remuneration in the banking sector to other parts of the financial services including alternative investment fund managers (e.g. hedge funds, private equity funds, investment trusts). The FSA has published a discussion paper to assist those alternative investment managers potentially affected by the UK implementation of the relevant European directive. The closing date for responses is 23 March 2012.

Market News

Directors’ remuneration reports - voting recommendations

To date, seven of the top FTSE150 companies with year ends on/ after 1st September 2011 have received voting guidance on their report.  Two companies have received a red top or vote against recommendation; TUI in respect of outstanding LTIs awards that are being allowed to vest in part for a CFO who left in the context of accounting errors; and Daily Mail and General Trust Company in respect of various discretionary payments to directors. Voting results are not yet available for either. 

Outside the FTSE150 it has also been a proposed substantial one-off share award that led to a red top from IVIS for Cairn Energy. This and general shareholder pressure resulted in Cairn Energy withdrawing the proposal ahead of an EGM. It will consult further with shareholders.

Tax News

Disguised remuneration NICs: FAQs published

HM Revenue & Customs has published a set of frequently asked questions (FAQs) about National Insurance contributions on amounts subject to income tax under Part 7A of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003). The FAQs (dated December 2011, but published on 5 January 2012) highlight and explain some potential areas of difficulty and can be found here.

Other News

Towers Watson’s seminars: Getting Executive Pay Right

New legislation to improve transparency and accountability is now certain. Towers Watson is holding a series of three seminars designed to help you make sure you are ready for these changes. The first session on 12 March 2012 will help listed companies think about how to analyse executive pay arrangements in new ways and to demonstrate clearly and effectively that executive pay is being managed effectively. Further details

Director of Talent & Organisation in the UK

Towers Watson has appointed Arvinder Dhesi to lead its Talent & Organisation practice in the UK. Dhesi’s role is to manage and grow the company’s successful talent management consultancy practice by extending and strengthening the company’s relationships with a broad range of clients. Further details

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This document is not intended to constitute or serve as a substitute for legal, accounting, actuarial or other professional advice.