The FRC recently published its 2022 annual review of corporate governance assessing the quality of reporting against the UK Corporate Governance Code.
Section E (which starts on page 51) covers remuneration reporting. Key points on remuneration reporting highlighted by the FRC include:
- reporting on how remuneration aligns with the company’s strategy, purpose and values should be clear and transparent;
- annual reports should explain the rationale for each performance metric (including ESG metrics) for bonuses and LTIPs. This explanation should include the weighting as well as the target achievement and should include the link to the company’s strategy and KPIs;
- where discretion is exercised, the reason why the use of discretion was required should be clearly explained including details of factors taken into account in making any decisions and details of the adjusted outcome;
- the FRC intends to consult on the development of the existing malus and clawback regime in the Code to deliver greater transparency and to consider a broader range of conditions for pay being withheld or removed; and
- the reporting of engagement with shareholders and workforce on remuneration policies and remuneration outcomes could be improved. In particular, the FRC would like to see more information on the impact this engagement has had on remuneration policies and outcomes.
Further information on all of the above along with examples of what the FRC consider good explanations can be found in the FRC review.