Six areas for AIM remuneration committees to focus on as they prepare for life under the new QCA code

The updated QCA Corporate Governance Code published in November 2023, alters the corporate governance landscape for AIM-traded companies that have adopted the code, particularly in relation to remuneration reporting.

The code applies to accounting periods starting on or after 1 April 2024, so companies with a 31 December financial year-end will have more time to prepare than those whose financial year-end is 31 March.

As has been well-reported, under the code companies must comply, or explain their non-compliance, with provisions requiring them to:

• explain how their remuneration structures and practices (for executives and workforce) support company purpose, business model, strategy, and culture
• build alignment between directors and shareholders by ensuring directors maintain a ‘meaningful’ equity stake
• ensure remuneration committees consult with other committees to set performance targets and to measure performance against them
• put their Annual Remuneration Report to an advisory shareholder vote
• put their remuneration policy at least to an advisory shareholder vote, unless a binding vote has been mandated (the QCA Code suggests that larger companies might wish to consider best practice and seek a binding vote for their remuneration policy) and
• obtain shareholder approval for new dilutive share plans and significant amendments to existing plans.

AIM Rule 26 requires companies to explain how they have complied with the provisions of their adopted corporate governance code. The QCA estimates that about 90% of AIM companies have adopted the QCA code, so this will require AIM company remuneration committees, not currently reporting to the standards set by the updated code to make significantly enhanced remuneration disclosures, or take the time to think about and report their explanations for non-compliance.

Whilst there is time to prepare, particularly for companies with a 31 December financial year-end, companies with a 31 March financial year-end may wish to start now to prepare for life under the updated QCA code. Here are six key areas for AIM remuneration committees to focus on as they make their preparations:

1. review directors’ remuneration policies and disclosures and their alignment with workforce pay
2. review or establish shareholder and wider stakeholder engagement programmes, particularly if the committee decides not to comply with code provisions
3. review incentive plan performance measures and targets for alignment with strategy, purpose, values and culture
4. establish a mechanism for consulting with other Board committees (likely to include Audit, Risk and, if it exists, Sustainability) on performance measures and targets
5. consider the narrative for the directors’ remuneration report and
6. consider and decide on the committee’s approach to shareholder votes on remuneration policy.

The updated QCA code is part of the evolution of UK corporate governance. It creates a framework within which companies can report clearly on their remuneration policies and outcomes. That said, the updated code potentially exposes AIM remuneration committees to greater scrutiny and higher reporting standards, either in relation to compliance with the code or explanations of non-compliance, for which there may be good reason.

MM&K is an independent, full-service adviser on remuneration, performance and governance. We specialise in advising AIM companies, are members of the QCA and are represented on the QCA’s Corporate Governance Experts Group and Share Schemes Experts Group.  In addition, MM&K is represented on the Share Plan Lawyers Group.

To find out more on how MM&K can help your remuneration committee adapt to the changing governance landscape, contact Paul Norris or JD Ghosh.

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