Our review of 2024 and some thoughts about what may be on the horizon for 2025

All at MM&K hope our clients, contacts, partners and other stakeholders enjoy a peaceful seasonal holiday break and we wish you a very happy New Year. We look forward to continuing our connections with all of you in 2025.

A milestone passed

2024 has been a remarkable year. MM&K celebrated 50 years in business, a milestone to be proud of. We have extended our international reach but remain a boutique by choice, specialising in executive remuneration, performance and remuneration governance – and working closely with trusted partners, who are better equipped than we are to advise on topics surrounding our core business.

A year of change

2024 has also been a year of dramatic change in the outside world, politically, economically, within society and in our business environment.

Ironically, bearing in mind widespread acceptance of the need for economic growth and calls for the UK to become more competitive internationally, the cost of doing business continues to rise. Inflation remains stubbornly above the Bank of England’s 2% target and seems to be trending upwards slightly on the back of wage rises, taxation and energy costs. It is thought to be unlikely that interest rates will fall in the near term. However, there have been some indications of a loosening of regulation. For more information see: Our April Article.

In our own sphere of executive pay, 2025 will be a year in which companies will need to get to grips (or to start getting to grips) with regulatory changes. The 2024 UK Corporate Governance Code applies to accounting periods starting on or after 1 January 2025.

For companies that have adopted the QCA Corporate Governance Code, regulatory change bites earlier. The latest QCA Code, published in November 2023, applies to accounting periods starting on or after 1 April 2024. It is likely to mean more work for remuneration committees, require more thought about remuneration policies and structures and result in greater levels of disclosure. For more information see: Six areas for AIM remuneration committees to focus on under the new QCA code.

And, of course, there is the UK private equity sector, where MM&K’s knowledge and expertise enable us to enjoy strong relationships and a reputation for sound independent advice. PE houses are faced with the challenge of revising their remuneration structures to accommodate changes to the taxation of carried interest announced in the October Budget.

What will happen next?

Keep things in perspective. First, in order of priority, is to take a deep breath, enjoy a peaceful and relaxing holiday period and return afresh in the New Year.

Rarely are things set in stone. Regulatory changes must be addressed and it is important that companies operate within a robust yet proportionate corporate governance framework. But remember that the UK operates within a principles-based corporate governance environment.

Many companies are keen to demonstrate their uniqueness to gain competitive advantage but when it comes to executive remuneration herd instinct tends to dominate, resulting in standardised executive remuneration structures and, according to research, less than optimal returns. For more information see our September Article on: The standardisation of executive remuneration structures restricts innovation valuations and shareholder returns.

We will support remuneration committees to adopt remuneration policies designed to meet the specific circumstances of the companies they represent and to make full use of ‘comply or explain’ to gain approval for tailored remuneration proposals. Proposed amendments to the UK Stewardship Code should help to level the playing field and encourage constructive dialogue between issuers, asset owners/managers and proxy advisers. (For more information see: UK corporate governance steadfastly marches forward into 2025.

Details of the Government’s intentions to subject PE carried interest to income tax are up for consultation until 31 January 2025. We will be making a submission and are in touch with our industry contacts to learn their views.

Annual reports for the year to 31 March 2025, of companies that have adopted the QCA Corporate Governance Code will be subject to its new disclosure requirements. The QCA Code also operates within a similar principle to ‘comply or explain’ in the UK Corporate Governance Code, so our comment above about supporting remuneration committees to make full use of that principle to make their case for tailored remuneration proposals is equally applicable here.

Trends

As for identifying remuneration trends for the coming year, crystal balls, unlike hindsight, do not benefit from 20-20 vision. That said, it seems clear that neither business confidence nor economic growth are not bouncing back following the election of a new government.

However, we think there will be growing interest in life sciences, pharma, infrastructure, including digital infrastructure and energy. PE firms have already recognised the opportunities and are making larger and longer-term investments in those sectors. They are all sectors that take a long-term view and in which the UK has, or is developing, a successful track record.

A key implication for remuneration in those, and indeed other, sectors of the economy, is that it must also take a long-term view. Sustainability is likely to be a consideration as reporting on this topic is currently being reviewed by regulators. The balances between fixed and variable pay and between cash and equity are likely to become increasingly critical considerations. Taxation might be a factor but it should not be a critical factor.

Early-stage businesses are likely to have fewer free cash resources than some more established firms. For early-stage firms, and others with an eye on preserving cash, paying in shares can be attractive but requires care to manage trade-offs and risks.

Arguments about links (or lack thereof) between pay and performance are likely to continue, owing to the lack of consistency of views among asset owners, managers their beneficiaries, and proxy advisers.

There is, of course, no reason why they should all have similar views, which makes it even more important that remuneration committees take time to develop remuneration policies to support the specific needs and circumstances of their businesses, build and present the narrative to make the case for those policies.

We are looking forward to continuing our good relationships with all our readers, clients, contacts, partners and other stakeholders in 2025. If we have a New Year’s wish, it is that 2025 will see the end of less standardised executive remuneration structures.

Paul Norris
Director and Senior Partner

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