Directors bonuses must now be justified

17 September 2014

fat cat rich man Are you one of those people on the internet who likes hitting out at 'fat cats'? Like griping about those who make loads of money because you  can't stop mentioning your socialist leanings down the pub, much to the mild irritation of your pals?

Well, get this - all companies (so, not just banks) will have to be able to prove that director's bonuses are linked to their performance thanks to a new City code.

You see, there's a review of the corporate governance code and it has been decided that companies are going to have to provide more information for shareholders. This will include all manner of performance things, as well as details on the risks being run and details about how long a business would be able to run for under their current financing arrangements.

Unbelievably exciting isn't it?

The Financial Reporting Council (FRC) have told the City that the next review is going to tackle diversity in the boardroom and they've got two years to make some changes.

"Diversity can be just as much about difference of approach and experience. The FRC is considering this as part of a review of board succession planning and will consider the need to consult on these issues for the next update to the code in 2016," it said.

More pressing changes ask for an extension of clawback arrangements which bankers are already working to. Basically, this new code says that companies should have arrangements to allow them to "recover or withhold variable pay when appropriate to do so". It'll also require companies to look at how long a director should wait before receiving any bonuses and that any extra pay should be link to performance.

"The changes to the code are designed to strengthen the focus of companies and investors on the longer term and the sustainability of value creation," said Stephen Haddrill, chief executive of the FRC. "The changes on remuneration also focus companies on aligning reward with the sustained creation of value rather than, as before, simply on retention – a focus that has tended to promote pay escalating and leap-frogging."

So, from now on, companies will make two statements: One will be based on accounting rules and the other will require directors to assess their ability to stay in business for more than 12 months. Could play havoc with our Deathwatch articles, but there you go.

Either way, those 'fat cats' are going to have to justify their bonuses now, which they inevitably will be able to, much to the chagrin of those who can't abide these upwardly mobile swine.

TOPICS:   Banking   Economy

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