Finally, in this month’s bulletin, we explore the High Pay Centre’s annual review of FTSE 100 CEO pay and take a closer look at proposed reforms for Companies House to support increasing corporate transparency. We also release our annual AGM Trends Report and launch the agenda for our first virtual EQ Conference.
As always if you have any questions on the content of this month’s bulletin, please contact your Relationship Manager.
Articles in this Edition cover:
- FRC reports on COVID impact on AGMs
- Far-reaching reforms proposed for Companies House and corporate transparency
- Proposals for directors’ identities to be verified before appointment
- Dissolved company records will be available for longer at Companies House
- Annual Review of FTSE 100 CEO pay published by the High Pay Centre
- FCA Primary Market Bulletin
- Chartered Governance Institute publishes directors’ duties guidance note
- The Pre-Emption Group extends flexibility to companies for capital raising
- Reliefs granted to companies using amendments to accounting for leases IFRS during the pandemic
- Changes to Companies House bank details
- Government extension of insolvency measures
- Financial Reporting Lab project
- HMRC Call for evidence on the Stamp Duty on Shares regime
- EQ releases AGM Trends Report
Dates for your diary:
Monday 12 to Friday 16 October – EQ Conference
We’re delighted to announce the launch of our first-ever virtual conference.
Join us for a week of trailblazing insight from across the share registration and share plans industry. Hear from industry experts, network with peers and share your expertise.
View full agenda and register here.
Thursday 8 October - Remuneration & Governance Reporting Webinar
We are delighted to let you know that Prism Cosec, together with London Stock Exchange and Alvarez & Marsal, will be holding its annual webinar on Remuneration & Governance reporting on Thursday 8 October 2020 from 10 am to 12 pm (BST).
This webinar will cover the most recent trends in remuneration and provide an update on other key developments on corporate governance issues. As this is intended to be an interactive session, we would welcome any questions you would like to submit in advance; please send these to JDevon@lseg.com.
The FRC has released a report on the Covid impact on physical AGMs, suggesting that this presents an opportunity for change. Recommendations include balancing participation and engagement with key stakeholders with the potential benefit of embracing hybrid technology and remote participation. We would be interested to hear your views. Please feel free to discuss with your Relationship Manager.
The Government has published its response to a consultation on corporate transparency and register reform carried out in 2019 to enhance the role of Companies House and increase transparency. The reforms put forward by the Government include:
- Compulsory identity verification for directors and People with Significant Control of UK registered companies;
- Compulsory identity verification for individuals who file information on behalf of a company. In the future only properly supervised agents will be able to file the information if it is not filed directly by the company;
- Additional powers for the Registrar of Companies to allow information that is submitted to be queried and to allow information to be removed in certain circumstances;
- Tighter regulation on amendments to accounting reference periods;
- The review of some aspects of filing accounts including exemptions that allow companies to submit micro or dormant accounts;
- Enabling personal information to be removed from the register.
- Introduction of an obligation on bodies that fall under the Anti-Money Laundering regulations to report discrepancies between the public register of companies and information they hold on customers
- Permitting cross-referencing of Companies House data against other data sets;
- Giving Companies House power to query and reject company names before they are registered;
- Reforming the issue of certificates of good standing.
Some of the reforms are likely to need further consultation and legislation and are also subject to funding being available in the forthcoming Spending Review.
Following the publication of the Government's response to the consultation on corporate transparency and register reform, Companies House has announced that one of the proposals is to introduce compulsory identity verification for directors to cut down on fraud and money laundering. Directors will not be able to be appointed until Companies House has verified their identity. Companies House has said that this will not delay the incorporation of a company as a 24/7 digital verification process will be established. Legislation will be needed to introduce the reforms, however, which the Government has said will be put forward as soon as parliamentary time allows.
Companies House has announced that following the Government's response to the Corporate Transparency and Register Reform consultation it has stopped removing dissolved records from its data with immediate effect. It will also put back dissolved company records from 2010 from January 2021. Dissolved company records were previously removed after six years which were then available for 20 years for a fee. Records of dissolved companies will continue to be kept for 20 years.
The High Pay Centre and the Chartered Institute of Personnel and Development (CIPD) have published their annual review of FTSE 100 CEO pay which focuses on pay during 2019 and the 2020 pandemic. Key findings in the report include:
CEO pay in 2019
- Median and mean pay packages decreased slightly from last year with median pay at its lowest level since 2011 at £3.61 million
- 55 firms paid less to their CEO in 2019 than in 2018, but 49 companies paid more
- The gap between the highest-paid executives and the rest of the workforce has narrowed slightly since 2018
- Women made up 7% of the FTSE 100 CEOs at the end of 2019, a slight increase from 2018. Mean female CEO pay is £4.02 million and mean male CEO pay is £4.74 million
CEO pay responses during the pandemic
As of 3 July 2020
- 36 companies announced executive pay cuts
- Measures ranged from temporary deferral to the pay reduction and cancellation of bonuses
- 11 firms have cancelled bonuses
- The most common reduction has been a 20% cut in executive directors' salaries and a 20% reduction in non-executive directors' fees
Recommendations made in the report include:
- Companies should replace remuneration committees with a people and culture committee or broaden the remit of the remuneration committee to consider diversity, sustainability, skills and wider workforce reward when making decisions on executive pay.
- Remuneration committees should ensure a greater proportion of CEO pay is linked to non-financial measures of performance such as measures on culture, diversity, skills development and employee wellbeing.
- Firms should link CEO reward packages to fewer, but more meaningful performance measures, for example, how they manage their money, people, customers and the environment.
- The benefits that the CEO and other senior executives enjoy should be fair in relation to what the rest of the workforce receive, such as health benefits and pension contributions.
- To ensure that stakeholders have confidence in pay practices, the company’s workforce should feed into the pay-setting process through a dedicated mechanism such as a consultation process.
- The UK Corporate Governance Code should be amended to require publicly limited companies to report on the ethnicity of their senior management teams and their direct reports.
The Financial Conduct Authority’s latest Primary Market Bulletin No.30:
- A reminder to companies about the importance of the Market Abuse Regulation, transactions that should be reported to the market and how to submit PDMR notifications;
- Information on changes to two Technical Notes on closed-end investment funds and class testing changes to investment management agreements;
- Amendments to the Prospectus Regulation in order to promote the use of SME growth markets giving a number of exemptions from the requirement to publish a prospectus and general updates to the Prospectus Regulation.
The Chartered Governance Institute has published a guidance note on directors' duties under the Companies Act together with information on s172 reporting. The content of the note includes practical guidance on the application of:
- S171: Duty to act within powers
- S172: Duty to promote the success of the company
- S173: Duty to exercise independent judgment
- S174: Duty to exercise reasonable care, skill and diligence
- S175: Duty to avoid conflicts of interest
- S176: Duty not to accept benefits from third parties
- S177: Duty to declare an interest in a proposed transaction or arrangement
- S182: Declaration of interest in existing transaction or arrangement.
It also provides examples of information that companies may want to consider in their s172 reporting.
The Pre-Emption Group (PEG) has announced that the flexibility offered to companies to raise additional capital by recommending investors consider supporting placings of up to 20% of issued share capital, has been extended to 30 November 2020. PEG reports that it considers that the relaxation introduced in April 2020 in response to the Covid pandemic has been a success. It sets out certain conditions that companies should comply with if taking advantage of the additional flexibility:
- the company should only do so if it is experiencing extreme circumstances, and issuance is required to fund an immediate concern;
- the particular circumstances of the company should be fully explained, including how the company is supporting its stakeholders;
- effective consultation with a representative sample of the company's major shareholders should be undertaken, and as outlined in the PEG's Appendix of Best Practice in Engagement and Disclosure, companies would be expected to disclose information about the consultation undertaken before the issuance;
- consideration should be given to the effect of the issuance on retail shareholders, and how they may be able to take part in some aspect of the issuance;
- the date at which the status of shareholding is assessed for pre-emption should be disclosed and, as far as possible, the issue should be made on a soft pre-emptive basis;
- company management should be involved in the allocation process; and
- existing share awards should not be normalised to negate the dilutive effect of the issuance.
After 30 November, PEG expects companies to return to the standard maximum of 10%. It also recommends a review of capital raising mechanisms going forward.
The Financial Reporting Council has issued a statement confirming that it will not take regulatory action where companies take advantage of provisions in the Accounting for Lease Modifications (amendments made to the International Financial Reporting Standard (IFRS) 16 on Covid-19 related rent concession) before it is adopted by the EU. If companies use the permitted reliefs, they must disclose this in the notes to their financial statements.
The Financial Conduct Authority (FCA) has announced a temporary relief under which listed companies that have to comply with DTR 4.1 and 4.2 and must prepare accounts in accordance with EU IFRS may use the amended IFRS 16 on leases as modified by the IASB in May 2020 to provide relief in accounting for rent concessions granted due to Covid-19.
The London Stock Exchange’s latest Inside AIM also sets out temporary relief for AIM companies choosing to use the amended IFRS 16 (Covid-19 related rent concessions) before adoption by the EU.
Companies House has announced that a new bank account should be used for BACS transfers from 1 September 2020 although the old account will stay open until February 2021 to allow for the necessary changes to be made.
On 24th September the Government announced an extension of the measures put in place to protect businesses from insolvency. The changes were introduced in the Corporate Insolvency and Governance Act. Without the extension, measures were due to expire on 30th September 2020.
The Financial Reporting Council (FRC) has asked for companies and investors to participate in its latest Financial Reporting Lab project on risks, uncertainties and scenarios.
HMRC has issued a call for evidence seeking views on how the current way in which documentation is stamped may be improved. The call for evidence identifies the potential for digitisation of the framework, particularly seeking thoughts on how the temporary digital COVID measures have been received, as well as the potential to combine the way in which Stamp Duty on Shares (physical stamping of paper documents) and Stamp Duty Reserve Tax (electronic collection of self-assessed payments) is practically applied. The deadline for responses is October 13.
This year it was impossible to escape the background of the coronavirus pandemic and its impact on businesses. Who could have predicted at the beginning of the year that companies would be handling physical attendance at their AGMs so differently?
In our annual AGM Trends report, we look over:
- AGM logistics
- Proxy Adviser Engagement
- AGM resolutions
- Lost and contentious resolutions
- Expected trends for 2021