The Financial Reporting Council announced on 17 September the release of the updated version of the Corporate Governance Code, after its consultation in April about proposed amendments to the sections on remuneration.

There has been a good deal of shuffling sentences about, but there are two main changes that will need to be taken into account by companies for accounting periods commencing on or after 1 October 2014:

  • clawback has been promoted from the backwaters of a schedule at the end to an upfront Code provision and has been significantly strengthened from “consideration should be given” to “schemes should include”; and
  • the role of the remuneration committee in designing packages that promote the long-term prospects of the company and avoid risk is emphasised.


The change in emphasis on clawback reflects the requirements of the directors’ remuneration reporting rules, under which companies have to state expressly in the remuneration policy table whether there are any such provisions. It also mirrors the mandatory clawback from 1 January 2015 for the variable remuneration of bankers imposed by the bank of England’s Prudential Regulatory Authority, which we reported in a July blog post. Although the Code says that companies should specify the circumstances in which clawback will bite, as we previously noted, it declines to give examples of what these might be. As for the last 20 years or so, the maxim of “comply or explain” applies.

Role of the remuneration committee

Changes that remuneration committees should note:

  • the statement “executive directors’ remuneration should be designed to promote the long-term success of the company” has been hiked up from a supporting to a main principle;
  • they are newly-tasked with determining “an appropriate balance between fixed and performance-related, immediate and deferred remuneration”;
  • in future “remuneration incentives should be compatible with risk policies and systems”;
  • there has been a strengthening of the suggestion that directors should hold shares for a period after vesting or exercise, from “should be encouraged” to “consider requiring”; and
  • with respect to the minimum three-year period before vesting or exercise of awards, “longer periods may be appropriate”.