The UK Corporate Governance Code, updated by the Financial Reporting Council (FRC), contains new guidelines on executive remuneration largely reflecting concern over recent events in the banking sector. 

An important addition to the post recessionary debate on executive pay, it represents a well thought through and useful guide for anyone involved in advising remuneration committees.  

In particular, it sensibly guards against over-adherence to a particular market positioning for executive pay.  This is something that PAYdata has been advising remuneration committees to avoid for some time. At the same time it promotes the importance of ensuring internal differentials, especially in respect of annual pay increases.

The underlying approach is further clarified by the following supporting principles set out in the code:

• “The performance-related elements of executive directors’ remuneration should be stretching and designed to promote the long-term success of the company.
• The remuneration committee should judge where to position their company relative to other companies.  But they should use such comparisons with caution in view of the risk of an upward ratchet of remuneration levels with no corresponding improvement in performance.
• They should also be sensitive to pay and employment conditions elsewhere in the group, especially when determining annual salary increases.”

The new Code applies to financial years beginning on or after 29th June 2010.