New Remuneration Principles and more robust expectations for corporate accountability represent significant changes to the latest Corporate Governance Policy and Voting Guidelines published by the National Association of Pension Funds (NAPF).
Launched as Business Secretary Vince Cable gave a speech on executive pay, the NAPF guidance also puts greater emphasis on corporate reporting of extra-financial factors and strongly encourages investors to utilise their full range of powers.
With the introduction of significant executive remuneration reform and ahead of the 2014 company reporting and AGM season, the NAPF policy includes a new set of Remuneration Principles against which investors can judge a company’s pay policy and its appropriateness for that firm. Where the policy falls short of these Principles, investors might decide to vote against it, and potentially the chairman and members of the remuneration committee.
Joanne Segars, NAPF Chief Executive, said:
“The NAPF’s priority is to maximise the long-term returns of our members’ assets, irrespective of the potential for short-term discomfort. Our guidelines aim to support our members in promoting the success of the companies in which they invest and ensuring that the board and management of those companies are held properly accountable to their shareholders.
“This year, we are more strongly encouraging companies to identify and engage with their long-term investors, rather than those on their register who are more interested in short-term trading. We expect remuneration committees to set rewards which drive long-term strategic success and seek to reward performance over the longer-term – in most cases this will be longer than three years.”
Reflecting growing concerns about the length of some auditor tenures, the NAPF policy places greater emphasis on the importance of safeguarding the independence of the external auditor. It includes for the first time a cap on non-audit fees of 100 per cent of audit fees (or a material monetary sum of £500,000). If this cap is exceeded in successive years, investors are encouraged to vote against the chair of the audit committee or the audit fees.
Another change to the NAPF policy encourages boards to explain to shareholders how they approach oversight and management of material extra-financial risks, including risks to reputation such as their approach to tax management.
The policy and guidelines are updated annually to reflect the latest market best practice, investor expectations and regulatory changes, and they fully support the UK Corporate Governance Code. They are used in the UK by ISS, the largest proxy advisory service, as the basis for its voting recommendations for UK incorporated companies.
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