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Compensation & Benefits: ABI - New Executive Remuneration Guidelines and "position paper"

March 2010

On 15 December 2009, a new version of the Association of British Insurers (ABI) Guidelines was published together with an accompanying position paper on how the Guidelines should be applied.

The revisions are timely and primarily follow on from the recent interest in corporate governance.

Guidelines

As the foreword to the Guidelines explains, although these “are predominantly for companies with a main market listing, they are useful for companies on other public markets and for other entities too.  All companies are encouraged to observe the Guidelines in the spirit of best practice”.

The updated Guidelines now include an additional comment on Remuneration Committees which, it says, “should also pay particular attention to arrangements for senior executives who are not board members but have a significant influence over the company’s ability to meet its strategic objectives.  In this context, they should have oversight of all associated risks arising throughout the firm as a result of remuneration.  Boards should consider disclosure of these risks and how they are managed in accordance with their obligations under the Enhanced Business Review” (see below for further explanation).

Position paper

The position paper follows the same theme. It notes that Remuneration Committees are “encouraged” to consider the core principles of the Guidelines and is intended to "help them understand how shareholders expect the...Guidelines to be implemented in current conditions”.

The paper also refers to current tax planning arrangements with may be implemented by companies in an attempt to avoid the new higher tax rates, noting that such “structures should not generate additional costs or tax bills for companies and may risk harming the reputations of companies and shareholders”. It also explicitly states that “remuneration policy should not seek to compensate directors for higher tax rates.”

The concept of claw back is contained in the Guidelines and is supported by the position paper together with deferral of incentive awards with extended performance periods.

Commentary

The inclusion of a new comment in the Guidelines covering risk and the role non-executives should play in managing this, together with the details in the position paper, reflects the ABI’s recognition of the current corporate governance debate and the recommendations of the Walker Review.

“Enhanced Business Review”

The provisions of the Companies Act 2006 required directors’ reports relating to financial years beginning on or after 1 October 2007 to detail the main factors likely to affect the company’s future, information about persons with whom the company has contractual or other arrangements which are essential to the business of the company, together with information on employment, social and community, and environmental issues.

Resources

New Guidelines

ABI position paper

‘FRC issues final report’

‘Corporate Governance - what now for listed non-financial services companies?’

‘Report published on risk governance in non-financial service companies’

Walker report

For further information or to discuss the issues raised, please contact Guy Abbiss (guy.abbiss@abbisscadres.com) or Libs Davies (libs.davies@abbisscadres.com) on +44 (0) 203 051 5711.