It has now been just over a year since the introduction of the new remuneration reporting and voting regime in the UK. The new rules require companies to report more detail and give investors a greater say over how pay is set. But has it resulted in positive change?
What is clear is that with more disclosure requirements, reporting on remuneration has not become any shorter. While reducing the reporting burden was never the aim of the regulations, it does not fit squarely with a general desire for more concise reporting.
This begs the question – have the regulations led to better communication? The answer to this is not black and white and depends on how companies have approached the challenge.
At one end of the spectrum, we see those who have treated it as a compliance exercise, sticking with boilerplate legalese, precisely the sort of disclosures that can be deemed clutter. At the other end, some companies have taken the opportunity to use the new regulations as a platform to review their communications on how their pay supports a performance and culture that generates long-term value for investors. So a focus on length alone does not provide a useful answer. In our experience, the most valuable reporting tends to come from the narrative section in the committee chair’s introduction, which some companies have been doing for a while now.
The regulations have certainly encouraged more proactive engagement from companies given that shareholders now have a binding vote on the remuneration policy. Again, some of this has been good, some not so good. Engagement on how remuneration structures are right for the company at hand is valuable; engagement asking for a rubber stamp on the policy report is less so. The latter approach is also less likely to promote engagement that will support innovation in remuneration, to the detriment of the whole process.
We are now at the end of year one. Companies have been grappling with how best to disclose, while investors have been finding out how to use the new powers given to them. What is essential is that both sides engage in dialogue over the coming years to ensure valuable disclosures, which allow them to discuss pay in the context of the company and its strategy rather than tinkering around the edges in order to push through a policy vote. This will be the real mark of success.