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Archive for November, 2015

What to do with the “Comply or Explain” Principle?

November 22, 2015 1 comment

Most European Corporate Governance codes are based in such a principle, which provides what is usually called “soft law”, that is a set of recommendations firms should follow to adopt best CG practices. They explain why they don`t comply if this is the case. The UK CG code was a leader in this approach, followed for example in Spain, but also in Singapore, etc.

Nevertheless serious critics have emerged, regarding:

  • The (low) quality of explanations,
  • The absence of shareholders´ engagement in oversight activities,
  • The lack of oversight competencies on any regulatory body, as to the kind of explanations companies offer in their CG reports.

This set-up´s main value is its flexibility, so that any firm can adopt it whatever its industry, size, structure, etc.

These are the general considerations introduced by George Hadjikyprianou (Univ. Leicester) in his paper “The Principle of “Comply or Explain” Underpinning the UK Corporate Governance Regulation: Is There a Need for a Change?, published in May 2015, (1). He then analyzes the degree to which the Principle reaches its objectives.

Is the Principle working? Read more…

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The UK Investment Association`s Compensation Principles (II)

November 21, 2015 Leave a comment

In our previous post, we described the Principles, the Remuneration Policies and part of the Remuneration structures recommended by the UK Investment Association i its recently published “Principles of Remuneration”, (1).

We will today refer to their recommendations regarding Variable Pay. First, they assert shareholders prefer simplicity; second, they state that variable pay must be linked to corporate strategy and long-term value creation; consequently, any metric which firms eventually use to measure performance, (financial or not, as ESG targets), need to be clearly connected to the firm´s performance characteristics. Read more…

The UK Investment Association`s Compensation Principles

November 15, 2015 Leave a comment

The Investment Association published in November 2015 its Compensation Principles, which it expects to guide how remuneration is established and structured in the UK. (1)

The guidance is structured in (i) Principles, (ii) Recommendations to Compensation Committees, -CC from now on- (General, Fixed and Variable Pay).

The Principles refer to the role different constituencies:

  1. Shareholders: remuneration practices need to pursue shareholders` interest and sustainable value creation, which is in line with Institutional Investors` fiduciary duty to final investors, whose capital must be correctly allocated, and once allocated, correctly managed.
  2. Board of Directors: non executive directors and mainly those belonging to the CC must oversee the executive remuneration policies, in connection with the fiduciary duty to act in the interest of shareholders and to pursue long-term objectives connected with other stakeholders also.
  3. Compensation Committee: the CC needs to ensure that internal and external equity, alignment with strategy and agreed risk appetite, and firm performance base executive remuneration.

Read more…