Our views

BEIS governance suggestions deliver encouraging food for thought


Ashley Hamilton Claxton, Corporate Governance Manager

5 April 2017

Today the Business, Energy and Industrial Strategy Committee (BEIS) published its report into Corporate Governance, with recommendations covering a range of areas, some of which are highlighted below. 

Diversity

We are supportive of aspirational targets for improving gender diversity in executive positions, but would caution against implementing quotas. We also believe more attention needs to be paid to ethnic diversity, as well as diversity of skill, opinion and socio-economic background.

The proposal to replace LTIPs with deferred stock options

We welcome the committee’s healthy scepticism of long-term incentive plans (LTIPs) and have long been arguing for more simplified plans, that are better tied to underlying business performance.  We are willing to consider alternative models, but believe companies should have the flexibility to determine the type of model that suits their business best. Phasing out of LTIPs from 2018 is logistically challenging and may not be suitable for all companies. We believe a comply or explain approach is preferable, whereby companies should be required to explain whether they have considered alternative models of pay, and if so why LTIPs are still the preferred model. Guidance from the Financial Reporting Council to encourage companies to consider alternative models, such as long-term deferred share plans, in consultation with shareholders would also be welcome.

Recommendations on binding votes

Companies have the option to ignore shareholder dissent on pay, and we have seen many instances of this. The suggestion to hold binding pay implementation votes where companies fail to receive 75% support from shareholders is welcomed and is a sensible alternative to holding a binding vote each year. We hope this will encourage remuneration committees to address long-standing issues with their pay practices.

The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. The views expressed are the author’s own and do not constitute investment advice.