Unlocking the Code: What do the changes mean for you? Continued...

The final major change to consider is the new Code’s guidelines on directors’ performance-related remuneration. Revisions around this issue appear in three places.

Remuneration

Firstly, new supporting principle D.1 instructs that the performance-related elements of executive directors’ remuneration should be designed to promote the long-term success of the company, as well as being stretching.

There is also an expanded provision, the new D.1.3, that discourages all forms of performance-related remuneration for NEDs, not only share options.

Finally, Schedule A includes amended performance-related remuneration provisions. The main changes are that:

· Performance conditions should be designed to promote the long-terms success of the company

· Non-financial performance metrics should be reflected in performance criteria where appropriate

· The company should consider using provisions that permit the company to reclaim variable components in exceptional circumstances of misstatement or misconduct

· Remuneration incentives should be compatible with risk policies and systems. The previous suggestion that incentives should be specifically risk-adjusted has been removed

Although, in most instances, performance-related elements of executive directors’ remuneration will already be aligned to the company’s long-term interests, remuneration packages should be revisited in light of the Code’s changed tone and focus in this area. In particular, the changes to Schedule A could require alterations to the terms of incentive schemes.