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Disclosure Rules & Shareholders Rights Keep Executive Pay in the Spotlight .

What are the recent developments of this long-standing, controversial topic?

Disclosure Rules & Shareholders Rights Keep Executive Pay in the Spotlight

By Blake Stephenson / Principal Product Manager, Business Development - Governance

With eye watering numbers reported during what seems to be a continuing bonus bonanza - seven years after the financial crisis in which there was widespread criticism of their remuneration - it’s no wonder that executive pay remains in the spotlight. The issue is a long-standing one: pay issues emerged in the UK in the 1990s with media campaigns leading on ‘fat cat’ pay in previously state-run utilities; and in the U.S., similar concerns were raised in the early 2000s following corporate scandals. It’s not just about the banks and there have been numerous attempts over the years to tackle the issue – most recently with a focus on disclosure and shareholders rights.

Where we are now:

  • Global Consensus on Disclosure: The G20/OECD Principles of Corporate Governance are high-level but important, and they explain that ‘companies are generally expected to disclose information on the remuneration of board members and key executives’[1].
  • Reflected in National Codes: Principles of remuneration are now included in the corporate governance codes of many countries. Take for example the UK Code - with a whole section dedicated to remuneration.
  • More Disclosures: Remuneration reports are shining an increasingly bright light on company policies and payments, now with controversial pay ratio disclosures -
    • In the U.S. the SEC in August 2015 issued a rule implementing the Pay Ratio Disclosure requirement under the Dodd Frank Act - requiring U.S. public companies to disclose the ratio of CEO pay to the median pay of employees - with the first disclosures required in January 2018 covering the fiscal year after 1 January 2017. Prepare for compliance using this excellent whitepaper from Simpson Thacher & Bartlett LLP.
    • The UK has had a similar requirement for a couple of years, with companies having to disclose annually the percentage change in CEO pay from the previous year and the percentage change in group employees’ pay. The disclosures should be presented in a manner which permits comparisons - but companies have faced problems in identifying employee pay costs often recorded in different ways in different countries and business units.

As with the U.S. the UK rules were watered down allowing companies to use a different comparator group of employees if this is considered more appropriate and there has been criticism that flexible methodologies make the disclosures meaningless, in turn making comparisons across companies impossible. There is no meaningful evidence that the pay gap has narrowed and while disclosure is generally good it may fuel the inequality debate - whether it will bring an end to high pay is far from evident.

  • Improved Shareholder Rights: There are now improved voting rights, whether that’s binding votes on remuneration policy in the UK or “say on pay” in the U.S. The European Union Shareholders Rights Directive is also in the works. With such rising shareholder influence, investors are likely to continue to address executive remuneration and other such sensitive topics with vigour during their direct engagement with board members. These meetings are fast becoming critical and strategic touchpoints for board members to maintain the confidence of their shareholders, and to ensure they continue to develop appropriate policies (See the whitepaper, DON’T SIT ON THE SIDELINE: ENGAGE BEFORE INVESTORS KNOCK ON THE BOARDROOM DOOR).

There has been a lot of regulatory development in relation to executive pay in recent years but evidently public hostilities remain. Whether or not politicians and regulators have grasped the right nettle and tight enough to make a meaningful difference, is as yet unknown. Increasing disclosure and shareholder rights are the primary tools in use, and consequently shareholder involvement is on the rise – including direct discussion with board members. Quality engagement should help directors to strike an appropriate balance between the desire of executives to be rewarded well for what they do, and the public perception of ‘corporate greed’ – time will tell how much difference this makes on such a long-standing and controversial topic, however.

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Blake StephensonBlake Stephenson -- After being called to the English Bar in 2007, Blake has held governance, risk and compliance roles and has had a particular focus in regulatory compliance and good governance in UK markets infrastructure. His experience in this regard is from SIX Swiss Exchange and the UK's Financial Services Authority (now Financial Conduct Authority), where he supervised the London Stock Exchange Group. Blake also spent time as an advocate towards the European political institutions while working at the Futures and Options Association (now FIA Europe). Since joining NASDAQ in 2013 and before joining the Directors Desk management team in 2015, Blake was the Associate General Counsel in London, ensuring regulatory and governance compliance for NASDAQ's London interests. In addition to being called to the Bar, Blake has a degree with honours from the University of Kent, Canterbury, a Graduate Diploma in Law and a CISI Diploma in Investment Compliance.


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[1] Page 44, G20/OECD Principles of Corporate Governance, September 2015.
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