In April 2014 the UK’s Financial Report Council (FRC) published its consultation document on the proposed revisions to the UK Corporate Governance Code (the Code). The consultation follows previous consultations in 2013 on directors’ remuneration and risk management, internal control and the going concern basis of accounting. The consultation document sets out eight key proposals made by the FRC including the following proposals relating to directors’ remuneration and risk management.
Directors’ remuneration
- Remuneration policies. The FRC is proposing changes to the wording of the high level principles set out in Section D of the Code, which deals with remuneration. The purpose of the changes is to remove any doubt as to the intention that a company’s remuneration policies must be designed to deliver long-term benefit to the company rather than short term benefit to the management.
- Clawback. The FRC proposes to make an addition to the Code to provide that performance related remuneration schemes for executive directors should include provisions that enable the company to withhold or retrieve variable pay where appropriate and to specify the circumstances in which the remuneration committee considers it would be appropriate to do so. The FRC has noted that it does not propose to specify in detail how these arrangements should be operated or the circumstances in which they should be applied, preferring to rely on the evolvement of best practice.
Risk management
On the basis of the FRC’s 2013 consultation on risk management, the FRC proposes to adopt the following changes:
- that companies should robustly assess their principal risks and report on how these risks are being managed or mitigated; and
- clarification that it is the board’s responsibility to monitor the company’s risk management and internal control systems on an ongoing basis, and not rely solely on an annual review.
In addition to the above and other matters set out in the consultation, the FRC is consulting on the potential benefits in allowing companies to publish on a website some or all of the information currently contained in the corporate governance report.
Responses to the consultation are to be submitted by 27 June 2014. Any changes will be implemented to apply to reporting years beginning on or after 1 October 2014.