2024 Key Update Round Up

• New Corporate Governance Code published for 2025

Last January, the Financial Reporting Council (FRC) released the new version of the UK Corporate Governance Code, which will generally apply to financial years beginning on or after 1 January 2025.  The key changes relating to executive pay concern malus and clawback provisions. Read more here.

• The High Pay Centre Fair Reward Tool 

In September the High Pay Centre (HPC) published a free-to-access online tool assessing the pay and reward practices of the UK's leading companies.  The Fair Reward Framework tool details the pay policies and practices of initially 65 FTSE 100 companies, with the remainder of the index to follow on an ongoing basis. Read more here.

• Revised Investment Association's Principles of Remuneration

In October the Investment Association published its substantially revised and simplified Principles of Remuneration, marking a significant shift towards greater flexibility and consequently engagement with relevant stakeholders in executive pay structuring.  Read our summary of the changes here.

• Proposed changes to UK financial services remuneration regulations

In November UK regulators announced proposals to relax certain restrictions around variable pay and to simplify the MRT identification process, under the complex rules that apply to remuneration policies in the financial services sector.  Read our summary of the proposals here.

• Updated Glass Lewis and ISS proxy voting guidelines

In November US proxy advisor Glass Lewis released its 2025 Proxy Voting Policy Guidelines for UK listed companies, largely in alignment with the Investment Association's revised Principles of Remuneration.  Global advisory service Institutional Shareholder Services (ISS) announced draft updates to its UK proxy voting guidelines for 2025 in the same month, which have now been finalised and published, which also reflect the IA's updated Principles and the 2024 Corporate Governance Code.  Read more here and here.

• Annual review of Corporate Governance reporting by the Financial Reporting Council 

In December the FRC published its Annual Review of Corporate Governance Reporting 2024, with the aim of identifying good reporting and highlighting areas for improvement ahead of the introduction of the new 2024 UK Corporate Governance Code. With regard to remuneration, the FRC emphasise need to ensure that the rationale behind key decisions on remuneration is clear and understandable.  Read more here.

Looking ahead in 2025 

2025 annual reporting season 

Following the release of the revised and now less prescriptive Principles of Remuneration by the Investment Association (IA), and the changes to key proxy voting guidelines in its wake, we're expecting a particularly interesting 2025 annual reporting season to come. 

We'll see how companies respond to the reduced constraints, which present an opportunity for companies to engage with and seek approval from shareholders to adjust their executive pay structures potentially in ways that have faced blanket disapproval from institutional investor bodies for the past several years. 

We're likely to see a marked uptick in discussions between companies and their major shareholders about remuneration policy revisions in the lead up to their 2025 AGMs, and very possibly the beginning of a broader variety of remuneration policy proposals being presented to shareholders for approval. 

Those companies with a significant US or global presence are expected to be most likely to seek an increase to levels of pay to increase their competitiveness in those markets, or potentially shift towards variable pay structures that include time-based payout elements (albeit with the protective features that the IA continue to emphasise), as the IA encourage shareholders to be more open to contemplating tailored proposals by companies – provided (and this caveat cannot, it seems, be emphasised too much) that such proposals are shown to be (a) thoroughly considered, explained and justified, (b) clearly linked to the company's strategy and (c) supportive of long-term value creation for stakeholders. 

Regardless of the shift in stance by the IA, clearly the success of any new proposals will depend on how they are received and perceived by shareholders, so much will rest on companies' prior engagement with them and the quality of the explanations underpinning their proposals. 

In that vein, narratives in many remuneration reports may well take on a different tenor this year, with hopes that many companies will be emboldened to move away from the bland, tickbox compliance narratives commonly seen in recent years and issue disclosures that show a better connection with the company's vision and goals. 

Companies that follow the IA's Principles of Remuneration will want to familiarise themselves with the changes and consider how they may affect their approach to executive pay going forward.  For more details on the recent changes to the IA's Principles of Remuneration, click here.

New Corporate Governance Code effective from 1 January 2025

Companies with a premium listing on the London Stock Exchange's Main Market will begin their compliance with the majority of the new 2024 Corporate Governance Code, which takes effect for financial years beginning on or after 1 January 2025. For an overview of the changes impacting remuneration, click here.

Financial services remuneration

The consultation on the proposed changes to the UK's remuneration rules for the financial services sector is set to close on 13 March 2025. Overall these proposals, which include a relaxation of the currently stringent rules around variable for pay for Material Risk Takers (MRTs), are welcome and are hoped to boost the UK's competitiveness in the banking sector.  However firms will have a significant amount of work to prepare for any changes, including ensuring that their processes to identify MRTs and MRTs who are accountable for material failures of risk management are compliant and robust. 

If you would like to discuss the recent changes to executive pay governance and the implications for your company, please contact Kathy Granby or another member of the Lewis Silkin Reward & Incentives team.