In Conversation: Clarifying Guidance for the UK Corporate Governance Code
Published: 13 November 2025
6 minute read
In the latest episode of the FRC’s In-Conversation podcast series, host Kate O’Neill sits down with Jessica Dahlstrom, Head of Corporate Governance, and Kelvin Ernest, Senior Policy Associate in the Corporate Governance team, to unpack the recent update to the guidance for the Corporate Governance Code. Together, they explore how the codes principles offer companies greater flexibility in structuring remuneration for non-executive directors, and how the change supports good governance in the UK.
Transcript
00:00:10:02 - 00:00:35:20
Kate O'Neill
Hello and welcome to another FRC in conversation. My name is Kate O'Neill. I'm the director of stakeholder engagement and Corporate affairs here at the FRC. Today's topic is to talk about the recently updated guidance to the Corporate Governance Code in relation to Renumeration for non-executive directors. And I'm joined today by Jessica Dahlstrom, the head of corporate governance here at the FRC.
00:00:35:22 - 00:00:44:01
Kate O'Neill
And Kelvin Ernest, one of our senior policy associates in the corporate governance team. Welcome, Jessica and Kelvin.
00:00:44:03 - 00:00:45:02
Kelvin Ernest
Great to be here.
00:00:45:04 - 00:01:05:03
Kate O'Neill
Well, guys, last week we updated our guidance for the Corporate Governance code to clarify how the code's principles give companies flexibility to structure their non-executive directors remuneration. So what does that mean, Jessica. Because the code doesn't set remuneration. But what's the guidance covering?
00:01:05:05 - 00:01:34:05
Jessica Dahlstrom
Yeah, I mean, it's very important to say that the code has said all along that Neds can be paid in shares. So the code is very clear in terms of how non-executive directors can be paid. And what we've done in the guidance is we've just clarified that payment in shares is a positive thing, and that it aligns the long term incentives nicely for non-executive directors in terms of the companies whose board they are on.
00:01:34:06 - 00:02:01:18
Jessica Dahlstrom
We've also added a clarification in the guidance about non-executives and share options. So it's really important again, as the code has always said, that non-executive directors do not receive performance related pay, but there are share option schemes without performance elements. So we've clarified the guidance to make sure that companies know that they can use such schemes, provided that the independence of non-executive directors isn't impacted.
00:02:01:20 - 00:02:18:13
Kate O'Neill
And we'll come back to that. Very important point about independence. But tell this is an update to the code itself. I mean, I know you, like many of your colleagues, get frustrated when guidance, which is what it says on the tin, is often seen as a new addition to the code.
00:02:18:15 - 00:02:36:05
Kelvin Ernest
Yeah. So just to be clear, the code remains unchanged. And this is simply just an update to the guidance we published alongside the code in 2024. But it also builds on to provision 34 by providing practical examples that companies can take to structure Renumeration for non-executive directors.
00:02:36:07 - 00:02:49:21
Kate O'Neill
This is a helpful guidance and as you said, some good examples there. But I think you do agree that guidance isn't part of the code. And it is frustrating when people take guidance and helpful hints and make it in.
00:02:49:23 - 00:03:02:08
Kelvin Ernest
Yeah, no, that's completely correct. And we've been quite clear when we do put out guidance that these are sort of practical examples or interpretations that companies can take on board, but their governance arrangements is perfectly open to them to decide.
00:03:02:10 - 00:03:17:05
Kate O'Neill
Absolutely. So, Jessica, how often do we update guidance? Because getting to my point before we do it sparingly, because we do want boards to make their own decisions about how to govern the companies that they're appointed to.
00:03:17:07 - 00:03:48:15
Jessica Dahlstrom
Exactly. Yeah. It's really important that we provide the guidance so that people can help companies sort of interpret the code, but that we don't change it too often because that would be, I think, quite confusing. We now have our guidance online, which does mean that when, for example, a new publication becomes available or something changes that we want to, for example, update and link to, we can change the guidance or in circumstances such as these where our stakeholders have told us it'd be helpful to have a clarification, we can do that too.
00:03:48:18 - 00:04:09:24
Jessica Dahlstrom
So that's really good, but we try not to do it too often. So if we change and we don't change it every month, but if we change it, it would be on the first Wednesday of the month. And we do include a very clear to change log at the top of the guidance. So that everybody who's using it can see when it's changed and exactly what's changed as well.
00:04:10:01 - 00:04:24:13
Kate O'Neill
So I think that's important, and it's great that it's online. And we've had some excellent feedback haven't we, Jessica. From stakeholders saying it's a much easier to use set of ideas, good practices, pointers on how to apply the code.
00:04:24:15 - 00:04:37:16
Jessica Dahlstrom
Exactly. We've had really good feedback, especially because you can click on sort of relevant bits of the code, and it takes you then directly to the guidance that will be most useful to you, rather than people having to scroll through PDF documents.
00:04:37:18 - 00:04:49:00
Kate O'Neill
And calver with this guidance today, how would you put it into practice to support good governance as it exists in the UK at the moment under the code?
00:04:49:02 - 00:05:10:04
Kelvin Ernest
So if you look at the introduction of the three paragraphs we've introduced, particularly paragraph 3 to 2 that focuses on the alignment between the net and shareholders through personal shareholding. And in that way, that's quite useful for companies because it offers them the opportunity to take accountability within renumeration structures, but then also enhances its transparency to the end reader.
00:05:10:04 - 00:05:29:03
Kelvin Ernest
I guess, in addition, the reasons as to why the changes are quite positive is that we've reinforced the element of independence, and we've asked companies to consider long term thinking. And then lastly, we've asked companies to disclose their rationale. And any restrictions that may be, especially when putting any of these approaches forward.
00:05:29:05 - 00:05:59:14
Kate O'Neill
But Jessica, in your opening comments, you said that you know, the code discourages performance related pay for methods and, you know, hoping that this guidance will help to Kelvin's point to continue the transparency around the way in which renumeration for everybody on the board and executive is governed and considered. But you also mentioned the independence and some of the issues on maintaining that in relation to share based payments.
00:05:59:16 - 00:06:30:15
Jessica Dahlstrom
Yes. I think this is a key point really. So from a governance perspective, as Kelvin has already suggested, it's really important that the non-executive directors are able to challenge management and have in mind the long term interest of the shareholders of the company. And if the non-executives aren't fully independent, for example, in a case where their remuneration might be linked to achieving a certain performance measure at a particular point in time, that ability to challenge the management is impacted.
00:06:30:16 - 00:06:42:12
Jessica Dahlstrom
So that's why we've sort of focused on that in our guidance change. Just to make it clear that there is a lot of flexibility for companies, but they must bear in mind this important point about independence.
00:06:42:14 - 00:07:10:17
Kate O'Neill
Absolutely. And I guess when engaging with stakeholders, I guess that independence is going to have to be really front and center of any discussions in case stakeholders are concerned that the way in which Renumeration might be changed for needs in some companies, that it considers that independence and that ability to challenge management that you so rightly referred to Jessica is in place and is always going to be there.
00:07:10:19 - 00:07:28:13
Jessica Dahlstrom
Exactly, yes. And I mean, Kelvin may want to come in on the sort of engagement with stakeholders, but we do hope that companies see this as an opportunity to really talk to those who have an interest in their remuneration structures about what they're proposing and why it works for their particular circumstances.
00:07:28:15 - 00:07:45:13
Kate O'Neill
And Kelvin, an engagement is so key for the code because it is flexible and principles based. How would you recommend that boards thinking of changing their remuneration schemes for their directors, engage with stakeholders to really get that understanding and their input?
00:07:45:15 - 00:08:10:06
Kelvin Ernest
Yeah. So we regularly highlight this in our annual review. But one of the key approaches companies can proactively attack is engaging with their investors, especially when they're considering alternative remuneration approaches. We also think that where there is a difference or there needs to be some form of disclosure, we always recommend that they should provide the rationale and highlight the structure and any form of restrictions they might have in the annual report.
00:08:10:08 - 00:08:27:01
Kelvin Ernest
And this is mainly just the sort around the way of essentially, you know, aligning your brand with governance principles and also stakeholder expectations just creates a better environment across the board, which is useful for shareholders individually, but then also stakeholders and the company itself.
00:08:27:03 - 00:08:45:22
Kate O'Neill
Well, just to make them, I would consider the success of this updated guidance may mean that next year's review might have some more examples on how boards have structured or restructured their non-executive renumeration. That would be good to see those examples brought out in next year's review.
00:08:45:24 - 00:08:59:01
Jessica Dahlstrom
Yes, that will definitely be something that would be looking at for when we do our annual review next year. We really like to include examples of good practice, and we will certainly keep an eye out for interesting developments in this area.
00:08:59:03 - 00:09:19:11
Kate O'Neill
All right. Well, thank you both and reminding our listeners that this is all on our website. So please go and look at the guidance. And I think it's safe to say, Kelvin, that we want guidance to be seen as a living document because it's not written in stone. It is updated like it is being updated last week and there for people to use kind of consistently.
00:09:19:17 - 00:09:33:11
Kelvin Ernest
Yeah. And I completely agree with you. Okay. You know the guidance is there to help companies with practical examples. And and we do always advise especially with that not on your view of corporate governance reporting to have a look and see what approaches companies may feel suits them best.
00:09:33:13 - 00:09:40:03
Kate O'Neill
Right. Well thank you both Jessica and Kelvin and look out for the updated guidance on the FRC website. Bye for now.