Boards told they must justify bonuses

They will also have to publish more details about the viability of their companies

Gideon Spanier
Tuesday 16 September 2014 20:43
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The boards of listed companies will have to publish more details about the viability of their companies and explain the reasons for paying bonuses under new City governance rules from the Financial Reporting Council.

But the FRC’s demand that boards must produce a “viability statement” in their annual strategic report that will look ahead “significantly longer than 12 months” has gone down badly with company bosses.

The Institute of Directors said: “The future is inherently uncertain and companies do not have crystal balls. Although investors would like companies to provide them with certainty about their future prospects, this is often not realistic.”

The FRC has consulted widely in the City on its update of the UK Corporate Governance Code after issues such as executive pay and risk management soared up the agenda.

The new rules, which apply to accounting periods starting after 1 October, demand that boards place “greater emphasis” on remuneration policies which are “designed with the long-term success of the company in mind”.

Companies must also be able to “recover or withhold variable pay when appropriate”.

Boards will also have to explain “how they intend to engage with shareholders when a significant percentage of them have voted against any resolution” such as the remuneration policy.

FRC chief executive Stephen Haddrill acknowledged companies would not always find it easy to look more than 12 months ahead but said boards and investors need to think about “value creation” in the long term.

The FRC added a board has an important role in establishing the “tone from the top” in terms of culture and values.

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