ABI 2013 guidelines published


Issues which the ABI has highlighted (none of which are real surprises) are:

Clawback and "malus": the momentum of interest in this subject shows no sign of slowing down. In addition to the ABI issuing its own views, the Financial Reporting Council (FRC) is currently looking at this area and the two regulatory bodies for financial services firms, the PRA and FCA, are also both actively considering this area (for the PRA's recent paper on this, please click here). The ABI clearly says that all plans and awards now need to include at least "malus" provisions (though most now do). The ABI encourages companies to consider not just including relevant provisions, but also how they would enforce them, though consideration of enforcement does not appear to need to be reported on - at least in advance. Companies which have not yet included these in all their plans should quickly think about doing this as there could be severe reputational risk at stake if they are not available to use at the relevant time.

Shareholding guidelines: shares subject to vesting conditions should not be included as relevant shares. The ABI requires a significant shareholding from directors and senior executives - but it continues not to require a specific level eg a salary multiple, or any specific timetable for building up a relevant holding.

The new regime: on 1 October 2013, the new statutory regime for UK listed companies came into force, although it will take some time to take full effect. The ABI supports the recently-published GC100 guidelines (not surprisingly, since it was represented on the body which worked with the GC100 to produce them). The ABI says that it only wants companies to put forward policy votes in normal circumstances every three years and generally expects the new-style policy to take effect immediately shareholders approve it. While this may be particularly problematic for companies for the 2014 vote, especially as they will still be feeling their way, the legislation may in any event not allow another approach with votes in later years. The ABI also expects the policy to be included in the annual report even if it is not being voted on that year. There is also a reminder that the commercially sensitive information proviso, which allows such information to be withheld, must be used sparingly.

Going forward: the ABI's voting advisory service, IVIS, will be reporting and colour coding remuneration policy and implementation reports separately. They will highlight breaches of ABI guidelines and inadequate detail. However, the ABI accepts that given the prescriptive nature of the legislation, which does not allow departure from agreed shareholders parameters, shareholders must therefore also include as part of the agreed policy a significant and inherent amount of Remuneration Committee discretion, though they will monitor whether this is excessive or excessively used.

Most companies will now be drafting their first reports under the new regime - either in early or advanced stages - and considering the relevant issues. The issue of the ABI's 2013 guidelines marks the last piece of guidance documentation companies have to consider before actual reports are written, votes are taken and actual remuneration restraints and shareholder expectations emerge with potentially dramatic results.

Click here to access the revised guidelines and an explanatory letter.