November 29, 2020

Volume X, Number 334


Pensions and Lifetime Savings Association Revised Corporate Governance Guidelines

The Pensions and Lifetime Savings Association (PLSA) has published a revised version of its Corporate Governance Policy and Voting Guidelines.

The main changes in emphasis include the following:

Leadership: In addition to a board’s accountability to shareholders for protecting and generating sustainable value over the long term, the Guidelines specifically state that directors are required under the Companies Act 2006 to have regard to other stakeholders, including workers, customers, suppliers, wider society and the environment, and that boards should be aware of these requirements when carrying out their work.

Accountability: Several changes have been made to the 2015 Guidelines to underline the importance of a company’s workforce to its long-term success. In the PLSA’s view, improvements are needed in the reporting of corporate culture and how the company’s employment model and working practices relate to its underlying purpose and business model.

Business people discussing strategy in boardroomRemuneration: The PLSA references growing concern at the size of executive pay packages and their structure. It believes that the evidence that pay incentives are necessary to motivate or reward executives and to achieve success for companies is questionable, and urges remuneration committees to take a critical and challenging approach to pay increases and be prepared to exert downward pressure on executive pay.

The Guidelines also contain new material regarding voting at AGMs:

Resolution 1: annual report and accounts. The PLSA states that if shareholders do not see better disclosure on the stability, skills and engagement levels of a company’s workforce in coming years, a vote against the annual report would be appropriate. Likewise, if there is no clear evidence that diversity is being sufficiently considered by the board, a vote against the chair or, if not the same individual, the chair of the nominations committee may be warranted.

Resolution 2: approval of the remuneration policy. The PLSA states that pay policies should ensure that maximum pay-outs remain in line with shareholders’ and other stakeholders’ expectations, including workers and wider society. If shareholders judge that the company’s remuneration policy fails to meet the PLSA’s principles, then they may decide to vote against the policy. Pay policies likely to bring the company into public disrepute or foster internal resentment, owing to their excessive value and/or overly generous incentives and rewards, also justify a vote against.

Resolution 3: approval of the remuneration report. A new section stresses the importance of the role of the chair of the remuneration committee in working effectively with shareholders to understand their concerns. The Guidelines recommend that PLSA members who vote against a company’s remuneration policy or report should, in most cases, also vote against the re-election of the remuneration committee chair as a director. Additionally, given the advisory only vote on the remuneration report, it is more appropriate for shareholders to vote against any remuneration report that they feel unable to support rather than to abstain.

Resolution 5: re-election of directors. The Guidelines specify that directors’ formal performance evaluation should be done in the context of the fulfilment of that director’s duty to act in the long-term interest of the company on behalf of its members, while also having due regard for other stakeholders, as outlined in the Companies Act 2006.

© Copyright 2020 Squire Patton Boggs (US) LLPNational Law Review, Volume VII, Number 20



About this Author

Hannah Kendrick Corporate Attorney Squire Patton Boggs Leeds, UK

Hannah leads our Corporate Practice in Leeds and has a wide range of experience advising both public and private companies on mergers and acquisitions, fundraisings, takeovers, restructurings and reorganisations.

Her work varies between UK and cross border and she works closely with executives, in-house legal teams and general counsel both in the UK and globally.

Hannah is a member of the Regional Advisory Group of the London Stock Exchange plc for the North East.

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