Updated GC 100 guidance 

The GC100 and Investor Group published on 22 July 2019 an updated version of its Directors’ Remuneration Reporting Guidance to incorporate the latest regulatory requirements on the disclosure of directors’ remuneration.

The new guidance incorporates the Companies (Directors' Remuneration Policy and Directors' Remuneration Report) Regulations 2019 ("2019 Regulations") which give effect to the elements of the revised Shareholder Rights Directive that the UK was not already meeting (see our previous briefing here ).  

The new requirements of the 2019 Regulations will apply to directors’ remuneration policies put forward at meetings on or after 10 June 2019 and remuneration reports in respect of financial periods beginning on or after that date. 

The GC100 guidance is influential and certainly an important reference document for all listed companies to bear in mind when preparing remuneration disclosures in their annual reports. The latest updates to the GC100 guidance are mostly limited to ‘matter of fact’ updates that simply reflect the substance of the 2019 Regulations but make some helpful clarifications, as we have summarised below. 

Summary of main changes to the GC 100 guidance

• Percentage change in remuneration of all directors and all employees

The 2019 Regulations have expanded the current disclosure regarding the percentage change in CEO remuneration to require the same disclosure for all directors (i.e. both executive and non-executive). In addition, the percentage change in the average remuneration (salary, bonus, benefits) of all employees of the company must be disclosed. 

The GC 100 guidance confirms that this new requirement strictly only relates to employees of the parent company but comments that companies “may wish to consider voluntarily disclosing the change in directors’ remuneration compared to a wider employee comparator group”. 

FIT comment

We agree that many companies will consider including a voluntary disclosure (in addition to the statutory disclosure) of changes in remuneration across the group, on the basis that it provides a more representative comparison. This is consistent with current practice and therefore not a change of approach. 

The guidance does not comment on the notes to the 2019 Regulations (as well as the recently issued BEIS ‘Frequently Asked Questions’) which suggest that a comparison should also be made against company performance (e.g. total shareholder return). This is not a requirement of the 2019 Regulations, but we think some companies may choose to include a comparison against company performance, or, as a minimum, add a cross-reference to the TSR graph provided in the separate 10 year comparison against CEO pay data. 

• Extension to include CEO or deputy CEO, even where they are not appointed as directors.

The 2019 Regulations have extended the scope of the disclosure requirement to include the remuneration of the CEO or deputy CEO, even if they do not sit on the main Board. The guidance confirms that it does not matter how the role of the person is described, i.e. it is the substance of the role that is relevant. For example the person may be the most senior member of the company’s executive committee.

The guidance also reiterates that these changes are not designed to extend remuneration reporting to other senior management roles e.g. Chief Risk Officer, Chief Operating Officer or Chief Commercial Officer if the individuals are not main Board directors.  

FIT comment

Unlike some other European countries, it is usual for a CEO (or deputy CEO) of a UK company to sit on the main Board.

This is arguably an anti-avoidance mechanism to prevent de facto CEOs from remaining below Board and thus escaping the restrictions of a shareholder approved remuneration policy. However, we do not see this as being a material point in practice.

• Deviations from the procedure for implementation of the policy

A listed company is required to include a statement in its annual remuneration report describing how it intends to implement the approved remuneration policy in the current financial year. If a policy is in its second or third year of operation, a statement is also included to explain any significant changes in the way that the remuneration policy will be implemented in the next financial year. 

The 2019 Regulations have now added a requirement that any deviations from the “procedure for the implementation of the remuneration policy” should also be set out in the remuneration report. The GC 100 guidance notes that it has not been customary for UK companies to set out, within their remuneration policy, a “procedure” for the implementation of the policy. Therefore, where no such procedure is set out, it will not be possible to detail any deviations.

FIT comment

We agree that it is uncommon for UK companies to provide a “procedure” for the implementation of the directors’ remuneration policy. However, most companies already include a fairly broad narrative regarding how the policy is to be implemented and we do not anticipate that practice will change materially as a result.  

• Conflicts of interest

Currently, listed companies are required to include a statement in the annual remuneration report with details of the activities of the Remuneration Committee during the year. This will normally outline committee membership and attendance, as well as details of persons providing material advice to the committee.

As a result of the 2019 Regulations, a new policy must also include an explanation of the decision-making process followed by the Committee for the “determination, review and implementation” of the policy. The policy must also set out the measures used to avoid or manage conflicts of interest. The GC 100 guidance notes that this “may include procedures surrounding executive attendance at remuneration committee meetings, and ensuring external advice received by the committee is independent”.

FIT comment

In our experience, it is usual, and indeed necessary, for executive directors to attend remuneration committee meetings, at least in an advisory capacity (as well as key support personnel such as the Group HR Director or Company Secretary). However, most remuneration committees are careful to ensure that executives are not present for all of the meeting and certainly not when their own pay is under discussion.

• Service contracts

New remuneration policies must now indicate the duration of directors’ service contracts or any “arrangements” with the director. The guidance notes that this should include the term length of directors’ contracts (should they be fixed term) or state if no fixed term exists – the latter being recognised as common employment practice in the UK.

FIT comment

Service contracts are already generally disclosed in detail so we do not see this as requiring any further actions for most companies

If you wish to discuss anything arising from this briefing, please ask your usual contact at FIT or call us on 020 7034 1111 or email us at Info@fit-rem.com.

This paper is intended to be a summary of key issues but is not comprehensive and does not constitute advice. No legal responsibility is accepted as a result of reliance on the contents of this paper.

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