The 2015 UK DRR Season: What’s New?
Admittedly, it is still early days to asses what’s new in FTSE DRRs for the 2015 accounting period. Even so, it looks like this will be a slow year for developments in DRRs for medium and large listed companies. Of course, that’s probably not surprising. For a company to change its policy requires putting the whole policy to shareholders for approval – it’s not possible to put a minor change to shareholders for approval in isolation. As we have discussed earlier, the majority of companies will have to put their policy before shareholders for approval at their 2017 AGMs. There is no compelling reason in most cases to make changes any earlier.
Nonetheless, the trend of increasing clawback provisions to back up malus provisions continues. Strictly speaking, the adoption of a clawback provision is a change to a company’s policy. Notwithstanding the comment about there being no provision in the legislation permitting piece-meal changes to a remuneration policy, many companies have or are adapting clawback provisions without taking their full policy back to shareholders. Presumably, comfort for taking this approach comes from the combination of:
including clawback provisions is in response to investor pressure to do so; and
the sanction for doing something outside an approved policy is a restriction on what can be paid to an executive director – quite the opposite of what a clawback provision is designed to do.
The other feature of the DRRs released so far is the move towards increased disclosure of bonus targets, albeit retrospectively. Again, being cautious of using too small a sample size to come to any meaningful conclusions, there continues to be resistance to disclosure of bonus targets, even retrospectively. This falls short of what the Investment Association is looking for, judging by their letter to the chairman of quoted company remuneration committees last year (see our previous post).
For the 20% or so of the FTSE100 that have released DRRs so far the overall impression seems to be one of edging up the level of retrospective disclosure of bonus targets (but probably still not to the level that the Investment Association is seeking) and leaving well alone with everything else, pending a full review of remuneration policy later in the year for adoption at the 2017 AGM.