UK investors, companies prefer simpler pay disclosures

UK investors and company executives favour reporting for director and executive remuneration that is simpler than what UK regulators have proposed, according to a new report by the UK Financial Reporting Council (FRC) financial reporting lab.

Released Tuesday, the report contains company and investor feedback on regulations proposed in June. The proposed regulations are designed in part to increase transparency with respect to directors’ and executives’ pay for large and medium-sized listed companies. They were released in a consultation by the Department for Business, Innovation & Skills (BIS).

The proposed regulations on directors’ and executives’ pay would revoke and replace Schedule 8 of the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, which applies to quoted companies.

The draft regulations proposed a new, two-part remuneration report designed to replace rather than add to current reporting requirements. The draft regulations would include a methodology for arriving at a single figure to report, building on a mechanism developed in a previous FRC financial reporting lab project.

Final regulations are expected to be issued this spring and take effect October 1st.

The second part of the proposed remuneration report would contain annual reporting that would include actual payments to executive directors.

The lab report released Tuesday examines:

• The proposed requirement to include scenario charts demonstrating how directors’ pay varies with performance.
• The proposed requirement to include a graph comparing CEO pay with company performance, measured using total shareholder return (TSR).

These two issues were frequently identified as areas of concern in responses to the BIS consultation, whose comment period ended in September.

In the lab report, investors and companies agreed that remuneration reports are becoming too long. Investors said they prefer information that is clear, simple and reported consistently, year after year.

Both groups preferred a simplified version of the scenario charts, an example of which is provided in the report. Investors and companies also suggested retaining the currently required, five-year TSR graph and supplementing it with a simple table describing:

• Historic levels of CEO pay.
• Information on the level of performance-related elements of pay, against the maximum opportunity.

“We hope the BIS finds the conclusions in this report helpful in their decisions on remuneration reporting requirements,” Sue Harding, the financial reporting lab director, said in a news release.

CIMA Chief Executive Charles Tilley, FCMA, CGMA, is a member of the steering group of the FRC’s financial reporting lab.

Nick Topazio, ACMA, CGMA, CIMA’s innovation specialist focusing on reporting, said the report is an example of the quality of work the FRC financial reporting lab is doing.

“CIMA supports simple, concise and insightful corporate reporting,” Topazio said. “The lab provided the forum for companies and investors to meet and agree on a lower level of disclosure than that proposed by the regulators – a welcome reduction in red tape should result.”

—Ken Tysiac (ktysiac@aicpa.org) is a CGMA Magazine senior editor.