In Conversation: Remuneration - UK Corporate Governance Code 2024
Published: 26 August 2025
9 minute read
In the final episode of the FRC's podcast series on the UK Corporate Governance Code 2024, Kate O'Neill, Director of Stakeholder Engagement and Corporate Affairs, is joined by Maureen Beresford, Director of Corporate Governance and Stewardship, and Kelvin Ernest Senior Policy Associate in the Corporate Governance team, for a thought-provoking discussion on the importance of remuneration and the vital role of the remuneration committee. Together, they unpack the purpose and significance of Section 5 of the Code, and explore why it plays such a crucial role in today's evolving corporate landscape.
Transcript
00;00;09;21 - 00;00;34;29
Kate O'Neill
Hello there and welcome to another FRC In Conversation. My name is Kate O'Neill. I'm the director of Stakeholder Engagement and Corporate Affairs at the FRC, and today is the last in our summer series on Corporate Governance podcast. And I'm joined by Maureen Beresford, Director of Corporate Governance and Stewardship, and Kelvin Ernest, Senior Policy Associate, Corporate Governance and Stewardship here at the FRC.
00;00;35;01 - 00;00;37;13
Kate O'Neill
Welcome, Maureen and Kelvin.
00;00;37;15 - 00;00;38;20
Maureen Beresford
Great to be here.
00;00;38;22 - 00;00;40;02
Kelvin Ernest
Great to hear you guys. Thank you.
00;00;40;09 - 00;01;08;14
Kate O'Neill
Great. And so we're talking about one of probably I'm sure you'll both agree, one of the nuttiest topics relating to the UK corporate governance code. And that is about Renumeration. And I guess, Maureen, before you take us into section five of the code and why do you think there is so much kind of, I guess, confusion, misunderstanding about the various elements of Renumeration that exist around the UK listed companies?
00;01;08;16 - 00;01;39;25
Maureen Beresford
Yeah, that's a really great question. I think it's because it's a complex area with lots of different players. You know, you've got the Companies Act which talked about remuneration, you've got legislation on the top of that. You've got voting by investors and you've got the remuneration committee and the strategy that we talk about in the code. So it's quite a cluttered area to kind of pin down who's exactly responsible for everything related to remuneration, you know.
00;01;39;25 - 00;01;53;18
Maureen Beresford
And then we've got lots of lobby groups talking about the importance of the right levels of remuneration, whether that be increasing remuneration for some people or reducing it. So it's a complex area, and I think that's where the confusion comes from.
00;01;53;20 - 00;02;12;00
Kate O'Neill
I guess Maureen that complexity is driven by the fact that renumeration is a deeply personal issue. I mean, not just for the person being paid, but for investors, as you say, some of the commentators around this, and it gets a lot of attention from places like the media that is of too much. Is that the right amount?
00;02;12;00 - 00;02;17;28
Kate O'Neill
So I guess, companies are balancing all of those interested parties in this key issue.
00;02;18;00 - 00;02;30;00
Maureen Beresford
Absolutely. You know, they've got to walk a line that gives the right level of remuneration, it aligns with strategy and performance, but also allows them to recruit talent.
00;02;30;03 - 00;02;43;00
Kate O'Neill
We'll come back to that kind of balancing act in a minute. But section five, Maureen, would you want to say to our listeners, if you want to know about Remumeration and I'll pop, if I'll save part of that, go straight to section five.
00;02;43;02 - 00;03;08;14
Maureen Beresford
Section five is the section on remuneration. It's right at the back of the corporate governance code, and it talks about the importance of pay practices that are fair, that are transparent, and that is strategically aligned with the company's long term success, but also taken into account the interests of shareholders. And we talk about wider stakeholders. Again, I think that's that cultural piece about what the press deal with and the wider commentary.
00;03;08;20 - 00;03;32;27
Maureen Beresford
And but we talk about the importance of governance in this area. You know, you don't want to have a poorly designed remuneration policy. You've got to be able to talk about risk taking, and you've got to think about promoting long term success and not promoting short termism. So section five, remuneration, sets out the top level principles. I also will comply or explain provisions in line with how we approach the rest of the code.
00;03;32;29 - 00;03;53;16
Kate O'Neill
I'll bring Kelvin in here as well. I mean, you talked about linking it to strategy. I guess both of you know, come to me Maureen first, but interested in your view, Kelvin. So what you'll say, Maureen, is any remuneration strategy proposal constructed in a vacuum is either going to fail or not get the support of this wide stakeholder universe.
00;03;53;19 - 00;04;15;14
Maureen Beresford
Fail is very strong word. I think when setting remuneration, you know you've got to think about all the different actors in the space and actually trying to deliver success for the component. And doing that normally means having a great long term strategy, thinking about the culture of the organisation and thinking about the wider workforce, what goals are what your business plan is, etc..
00;04;15;17 - 00;04;22;13
Maureen Beresford
So I think it's bringing all those things into the thought process that goes into a good remuneration policy.
00;04;22;16 - 00;04;40;23
Kate O'Neill
And Kelvin, I mean, the remuneration committee plays a really important part in ensuring not just responsible pay practices, but to Maureen's point, kind of balancing all of these various interests, whether they're stakeholders like investors through to other commentators. So how important is their role?
00;04;40;26 - 00;05;10;27
Kelvin Ernest
This is extremely important given that the committee is primarily made of independent non-executive directors. So you've really got that objective, an independence viewpoint from the staff. But in terms of looking at executive remuneration for directors, it's quite clear that the remuneration should be set on the company's long term strategy. Its values and its overall performance. But alongside that, they should also consider how best it is to make sure that pay is focusing on long term, sustainable success rather than short term gain.
00;05;11;00 - 00;05;25;23
Kelvin Ernest
And I think even more increasingly, remuneration committees also need to take into account exactly how pay stacks up against the wider workforce, and they also need to consider any potential safeguards if they need to recover any bonuses if anything goes wrong.
00;05;25;26 - 00;05;33;26
Kate O'Neill
You're talking about the malus and clawback provisions that are not very recent, but have evolved over the recent past.
00;05;33;28 - 00;05;37;28
Kelvin Ernest
Exactly. And those are the two new provisions that we place in our code.
00;05;38;01 - 00;05;57;14
Kate O'Neill
I guess for our listeners, malus and clawback is defined as post the event I'm given. Correct me if I'm wrong. If your executive's been found to have not carried out their contractual duties in the spirit of their remuneration policy, there are those opportunities for the board to reclaim the amount paid.
00;05;57;17 - 00;06;18;10
Kelvin Ernest
Yeah. So exactly. Okay. It's your recovery in withhold provisions. You might this is withhold, which is essentially stopping any potential payments ahead of actual potential vesting. And then you've also got your clawback procedures which you can use shortly after bonus payments have been given to directors and can also be recovered within a certain time period.
00;06;18;13 - 00;06;36;18
Kate O'Neill
I know there's a lot of confusion out there, which is, I guess in some ways frustrating that the FRC is responsible for determining the quantum of remuneration. I mean, that just can't be the case because every company is different. It's got to be linked to their own strategy. There's no one size fits all right?
00;06;36;21 - 00;07;17;14
Maureen Beresford
This is a real opportunity for us to be very, very clear that the FRC, through the corporate governance code, does not play any role in setting executive pay. It is up to the individual companies. The code is all about transparency, the remuneration committee, etc. and aligning pay. It's not about setting a quantum of pay. And I think what we're seeing is that over the last few years, you know, investors are taking this very seriously in our stewardship codes, where we're seeing investors looking at the quantum figure and making decisions based on that transparency and on engagement with companies.
00;07;17;14 - 00;07;42;07
Maureen Beresford
And I think, again, there's some negative narrative saying that all investors don't want to see high rates of pay, but I think they look at everything on a case by case basis, company by company basis, and make decisions after that discussion and after thinking very carefully about what a level of pay will achieve for the company and the investor.
00;07;42;10 - 00;07;58;15
Kate O'Neill
Maureen the comply or explain provisions surely should be used in exactly the way we intend in relation to remuneration. If you're setting out the stall that this is the policy, it's not about the quantum, it's about the way in which the policy is being constructed and communicated to stakeholders.
00;07;58;15 - 00;08;22;28
Maureen Beresford
Certainly, exactly. You know, we've talked about compliance, explained many, many times. If you don't comply with the provision, then it's up to companies to kind of explain why. And an explanation is just as good as trying to write in your annual report that you've actually complied the provision. And it's much more helpful to the reader to understand what the governance arrangements are.
00;08;22;28 - 00;08;41;20
Maureen Beresford
If you're not following the code. And I think, you know, we've said it many times, it's a good thing to explain. As long as you can demonstrate good governance and what you're trying to achieve, and then it's up to engagement with your investors to determine that that's the right course for that individual company.
00;08;41;23 - 00;08;58;12
Kate O'Neill
But the it goes to your point on the stewardship code, which is about engagement across the whole. Yeah, it isn't just about at the paper or through time, having good, rich conversations about how pay is linked to strategy will be able to be reflected in both codes.
00;08;58;14 - 00;09;20;11
Maureen Beresford
Exactly and we're seeing more and more reporting and stewardship codes about remuneration issues. You know, some say actually we do not follow our proxies guidance this year. You know, we engage with the company and we look at what they have reported, and we made a decision outside of that reporting guideline. And these are things that are very clear in stewardship reports.
00;09;20;14 - 00;09;29;23
Maureen Beresford
So it is worth looking at the annual report and the relevant stewardship report, which may give you the insight that is not clearly available elsewhere.
00;09;29;26 - 00;09;55;23
Kate O'Neill
Kelvin, the code says any data shouldn't be paid and share options, but your guidance mentions that part of their pay could be in shares. Could you be a little more specific about why this has been included and explain the difference? Because I know that both of you would agree. It's frustrating when guidance is taken as the code. The guidance is a helpful tool in implementing the code to reflect your own circumstances.
00;09;55;25 - 00;10;25;20
Kelvin Ernest
Yes, I'm happy to clear this up, especially given that there's a lot of confusion around this area. But I'll probably start off Kate, with just an explanation as to why it's been included in the code. So provision 34 states that non-executive directors should not have share options or any poor performance related incentives in their pay. And that was first emphasised by the Derek Hicks review, which highlighted the core role of the NED, and also recognised that the NED is primarily there to provide independent oversight and challenge.
00;10;25;25 - 00;10;49;03
Kelvin Ernest
And I guess the main reason surrounding that is that given the access to potentially share options that could potentially undermine the independence and also create a conflict of interest, and especially given that, for example, there may be a case where a NED might be more inclined to go down a risky or short term strategy in order to inflate the share price for their own personal gain.
00;10;49;05 - 00;11;19;16
Kelvin Ernest
So the difference is, share options are usually used to incentivise performance, and they give the directors a right to buy shares at a later date, and that usually is often discounted price. Meanwhile, what we have done and what we have suggested within our guidance was that we have allowed nets to have their fees paid in shares as long as the market price, and not linked to performance, which is also a view that is endorsed by the Investment Association's principles of integration.
00;11;19;19 - 00;11;38;23
Kelvin Ernest
So I guess the key difference here is that share options are essentially performance incentives, and they give the opportunity to buy shares at late price. But paying directors fees and actual shares on a fixed term basis can align themselves with shareholder interests without compromising their objectivity.
00;11;38;25 - 00;12;04;04
Kate O'Neill
Maureen and Kelvin, I mean, a lot of times it is brought up to us. Well, how does the UK corporate governance Code approach to remuneration aligned to different markets? And people mainly mention the United States as not being quite in line. They should be aligned. How feasible do you think that is to align different markets with different drivers, different cultures Maureen do you want to go fast?
00;12;04;07 - 00;12;29;25
Maureen Beresford
Yeah, I think it's a complex equation isn't it. It's a very easy to say, oh, it should be aligned with the US to get the talent in our company. I think we just have to remember that it's not always that straightforward. The US have huge companies and very different capital for those companies, and I think it is more down to what is the right pay for the right job in a particular market.
00;12;29;28 - 00;12;58;14
Maureen Beresford
And if that's higher than we've been paying in the UK, then that case needs to be made by the company. As I've said before, talking to its investors. And I think just simply saying we need to align is a very simplistic approach. And I think that the engagement between investors and companies is the key to unlocking the relevant levels of pay within the UK.
00;12;58;14 - 00;13;13;08
Maureen Beresford
And as I said earlier, you know, we know that investors are fully aware that the narrative that's being discussed over the last couple of years and making decisions that they believe us investors is the right for the companies that they invest in.
00;13;13;10 - 00;13;27;14
Kate O'Neill
Kelvin, back to comply or explain. I guess there are cases where the board and perhaps particularly the Renumeration committee, have to be brave in leaning into a decision that they going to have to explain, rather than demonstrate compliance.
00;13;27;16 - 00;13;47;11
Kelvin Ernest
Yeah. And there are cases where we see in the annual review of corporate governance reporting, where we see a lot of time that companies might go down the explanation route as opposed to the compliance route. And we're all open and happy that companies are doing that. I guess the wider point which Maureen raised is always thinking about the wider governance framework.
00;13;47;13 - 00;13;58;18
Kelvin Ernest
And if you are going to make any suggestions on specific pay levels, just make sure that they work within the framework. And they also are taken into account by the wider rem committee.
00;13;58;21 - 00;14;27;08
Kate O'Neill
All of those other parts of the regulatory landscape and its practice landscape, not just what the FRC has put in the corporate governance code, but more in in Kelvin. This is a topic that will never go away, I fear, but good to put some really clear statements out to our listeners. So there's less confusion about section five of the code, but also what the FRC's direct responsibility is, particularly in relation to, well, in this case, not in relation to quantum of remuneration.
00;14;27;10 - 00;14;45;12
Kate O'Neill
This is the last of the summer series on the UK corporate Governance code. So thank you, Maureen and Kelvin for wrapping up. What's been a really well received series on some important topics for not just our stakeholders, but companies and their stakeholders. So thank you Kelvin, and thank you, Maureen.
00;14;45;14 - 00;14;46;20
Kelvin Ernest
It's a great thank you.
00;14;46;22 - 00;14;47;04
Maureen Beresford
Thank you ,Kate.