Remuneration disclosure requirements kicking-in this year bring big changes for companies that have adopted the QCA Corporate Governance Code. Are you ready?

January 29, 2025


Changes made to the UK Corporate Governance Code (UKCGC) and the QCA Corporate Governance Code (QCA Code) kick-in this year. The new 2024 UKCGC applies to accounting periods starting on or after 1 January 2025 and the 2023 changes to the QCA Code, apply to accounting periods starting on or after 1 April 2024.

Both codes contain sections aimed specifically at remuneration-related disclosures. For companies subject to the UKCGC, the principal change is to require enhanced disclosures about malus and clawback.

The QCA Code, however, contains significant additional remuneration disclosure requirements for those companies that have adopted it – some SMEs and most AIM companies. For may 2025 is the first year in which their remuneration committees will need take account of the new QCA Code disclosure provisions.

Here are five recommendations for remuneration committees of companies that have adopted the QCA Code:

1.  Review current directors’ remuneration policy and disclosures and how they align with workforce pay

A core QCA Code principle is that annual reports should explain how remuneration structures and practices across the business (executives and workforce) support company purpose, business model, strategy, and culture. Directors’ pay structures should build alignment with shareholders through maintaining a ‘meaningful’ equity stake. Consider the structure of remuneration. Does it work for the business? What is the appropriate relationship between fixed and variable pay? It will not be the same for all companies. Is there sufficient equity headroom? Shareholders will be concerned about dilution.

2. Review or develop the narrative supporting the selected policy and why it is appropriate for the specific circumstances of the business

Corporate governance and disclosure principles are designed to elicit transparent explanations of why particular remuneration policies and practices have been adopted. Disclosure is an opportunity for the company to tell its story in its own way. The QCA Code is not a rigid set of rules. Like the UKCGC, it is based on the principle of ‘comply or explain’. Companies choosing not to comply with the letter of the Code (and there may be good reasons for this) will have and should take the opportunity to explain their reasons to stakeholders.

Take time to develop the policy that is right for the specific circumstances of the business. As part of this process, remuneration committees might usefully liaise with other Board committees (likely to include Audit, Risk and, if it exists, Sustainability) not least to demonstrate that performance targets have been considered and selected after careful consideration of specifically relevant key factors affecting the business.

3. Review or establish a stakeholder engagement programme (particularly if a decision is taken not to comply with Code provisions)

Engagement with investors and other stakeholders is part of good governance. At a practical level it helps to avoid surprises and can elicit useful feedback. Proxy advisers, on whose voting recommendations (principally) institutional investors can sometimes place a high level of reliance, are taking more interest in AIM companies and SMEs. Whilst US proposals to curb the perceived power of proxy advisers have not yet reached the UK, here, proposed amendments to the Stewardship Code would include provisions aimed specifically at proxy advisers. It is inherent in the principle of ‘comply or explain’ that a reasoned, cogent explanation of a decision to adopt a course different from the letter of the Code is also in compliance with the code. However, for ‘comply or explain’ to be effective, a constructive dialogue between the remuneration committee and investors must exist.

4. Review incentive plan performance measures and targets

This would normally be done towards the end of the financial year before the start of the next incentive cycle. However, internal and external influences can cause things to change. Investors generally oppose in-flight amendments to performance targets but recognise that circumstance might arise in which it is appropriate for remuneration committees to exercise their discretion to adjust vesting, either up or down. As any exercise of discretion would need to be explained in the annual report, those remuneration committees that have adopted a clear policy regarding the use of discretion and a shareholder engagement programme are likely to be best placed.

5. Make a decision about seeking shareholder votes on remuneration policy

The new QCA Code contains the following provisions:

  • annual remuneration reports to be subject to an advisory shareholder vote;
  • remuneration policy to be subject at least to an advisory vote (the QCA Code suggests that larger companies might wish to consider best practice and seek a binding vote for their remuneration policy) and
  • new dilutive share plans and significant amendments to existing plans, to be subject to a shareholder vote.

We think it is good practice for shareholders to approve dilutive share plans. That said, the process of obtaining advisory shareholder votes on remuneration reports and policies is likely to change the reporting landscape for some AIM companies and emphasises the importance of the policy review at 1, above and of developing a clear narrative and engaging with investors.

MM&K is an independent firm advising on executive remuneration, performance and related corporate governance. To discuss this article or for more information, please contact paul.norris@mm-k.com.

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