Why UK listed companies are now considering replacing their LTIPs with Restricted Stock Plans

Why UK listed companies are now considering replacing their LTIPs with Restricted Stock Plans

Back in November last year, the Investment Association (the “IA”) came out with these dramatic words:

Alternative remuneration structures – We encourage all Remuneration Committees to evaluate their remuneration structures to ensure that they are appropriately aligned with the implementation of the company’s strategy.

In recent years, there has been a growing debate on the benefits of various long-term incentive structures. For many years, Long Term Incentive Plans have been introduced by companies and generally accepted by shareholders. However, IA members are increasingly of the view that the traditional Long-Term Incentive Schemes are not working as effectively as they could for all companies and can sometimes drive outcomes which can cause concerns for shareholders such as increasing grant levels or volatile and significant vesting outcomes.”

Research from the Purposeful Company has recently shown that there is a growing body of investors who are willing to consider alternative remuneration structures, if the Remuneration Committee can argue the strategic benefits of adopting such schemes. Following the Purposeful Company report, IA members commit to working with other stakeholders to look at the circumstances in which such schemes may be more widely implemented in the UK market. If needed the IA, will look to review the Principles of Remuneration as soon as possible after next year’s AGM season to reflect on any developments or changing expectations.”

These comments from the IA followed soon after the publication by the Purposeful Company of its Study on “Deferred Shares”. The Purposeful Company was established in 2015 with the support of the Bank of England to identify changes to policy and practice to help transform British business with purposeful companies committed to creating long term value through serving the needs of society.

The reference to “Deferred Shares” is really a reference to Restricted Stock (or Share) Plans. Under these types of plans, executives are simply granted a right to receive a number of shares in their employing company in three or five years’ time and provided the executive is still employed by that company at the end of the vesting period, he or she will receive that number of shares (subject to any tax and social security deductions that may be applicable) at that time. They will typically also receive the value of any dividends declared on their restricted shares over the course of the deferral or restricted period.

In effect the only performance criterion that will apply to a restricted share award is the continued employment of the award recipient throughout the vesting period.

These types of plans are already quite common in the US where they are typically structured and referred to as “RSUs” or Restricted Stock Units.

In The Purposeful Company’s Key Findings Report, it made (inter alia) the following statements:

• There is widespread support amongst investors and companies [in the UK] for greater adoption of deferred share models than we see in the market today.

• Overall the consensus is that such plans might be appropriate for 25% of companies or more, as opposed to the c. 5% that we see in practice today.

• Investors and companies generally see behavioural and practical benefits from a move to deferred shares, including long-term alignment and encouraging long-term behaviour, as well as greater simplicity and spending less time on executive pay and target setting. The academic evidence largely supports these views.

The Report also commented: “Investors highlighted two behavioural impacts above all others. Most investors believe that changing to deferred shares will encourage executives to take decisions in the long-term interests of the business and to execute strategy more effectively because they will not be distracted by LTIP targets.” Furthermore, they also highlighted a more practical benefit of these types of plans, they avoided the difficulties of long-term target setting.

The situation we now find ourselves in and which a large number of companies are struggling to deal with, is highlighting, more than ever before, just how difficult long-term target setting can be. For many companies in these worrying economic times, it will be practically impossible to say now, or even in the next three months, what are the right three year performance metrics that they should apply to their planned upcoming award of performance shares.

It is interesting in this context that the IA have just published another missive, this time about the effects of COVID-19 on executive remuneration policies. In this they say:

“There are concerns from companies and shareholders over the ability to set meaningful three-year targets at the current time and questions over the appropriate grant size given the share price reaction to COVID-19. In particular, Committees should be considering if it is appropriate to make LTIP grants at the current time and whether given the current market environment it might be more appropriate to postpone the current LTIP grant. Members believe that there are a number of options depending on the individual circumstances of the company:

1) Grant on the normal timeline setting performance conditions and grant size at the current time.
2) Grant on the normal timeline setting the grant size now but committing to set performance conditions within the next six months.
3) Delaying the grant to allow the committee to more fully assess the appropriate performance conditions and grant size. In such circumstances Committees should aim to make the grant within six months of the normal grant date.”

We are surprised that the IA is not suggesting a fourth option: to replace the current LTIP (presumably a Performance Share Plan) with a new Restricted Stock Plan and make awards under the new plan as soon as possible after shareholders’ approval for such a plan is obtained.

Perhaps one of the biggest questions around the concept of Restricted Share Plans is at what level should awards of deferred shares be made?

Again referring to the Key Findings Report of the Purposeful Company it had the following to say: “Investors and companies were broadly in agreement. Half of investors said they would require a discount of at least 50% in grant level, compared with the previous LTIP, to support a restricted share plan. Around half of companies also felt that this was appropriate. However, nearly 40% of companies said a discount less than 50% was required to make restricted shares attractive to executives (with responses evenly distributed between a 25% and 40% discount). Equally, 43% of investors said they would consider a lower discount than 50%.”

This provides very useful contextual background, and if asked to comment as a generality, MM&K would suggest that it would be appropriate that Restricted Stock Awards be made annually at around 60% of current Performance Share Plan Award levels.

So what is the experience of companies that have adopted Restricted Share Plans? For the most part they feel they are working well. However, they did acknowledge that they all encountered problems in getting agreement from shareholders at the time they were being implemented and that some proxy advisers challenged them purely on the grounds that they were “non-standard” and they were not able to tick the boxes which expected them to see long term performance metrics.

We hope and, in some ways, expect that the current economic climate will change investor attitudes towards these types of plans. In any event, any company considering going down this route will need to engage with its principal shareholders at an early stage and the remuneration committee will need also to put together a convincing argument that a new long term incentive structure of this kind is right for the company and all its stakeholders. MM&K would be pleased to assist any company considering a new plan of this kind.

For further information contact Nigel Mills or Paul Norris.

Now cash is the only KPI, there is an opportunity to rethink executive incentives

Now cash is the only KPI, there is an opportunity to rethink executive incentives

There is now a singular concentration on conserving corporate cash.

The Bank of England has issued a statement, falling barely short of an instruction, that banks should withhold dividend payments. Some, but not all, have complied. This is a crucial week for UK plc, as a number of the UK’s largest companies announce their results and dividends. BP and Shell are among them. Some analysts estimate that these two companies account for almost 25% of FTSE 100 dividend payments yet to be made based on last year’s performance. The boards of both companies face a difficult decision on dividend payments. The imperative of conserving cash in the company, at a time when the oil and gas sector is suffering the effects of a low commodity price, has to be balanced against the importance of their dividends to the economy, particularly pension funds. At the time of writing, BP has maintained its first quarter dividend; Shell’s announcement is due on 30 April.

Last weekend, it was reported that the total UK company pension deficit of about £136bn is expected to increase by up to £500m. Industry insiders believe that the Pension Protection Fund can withstand this increase but that company levies to the fund are predicted to rise, placing more strain on company cash flows.

In addition, there are numerous examples of directors taking salary cuts. A High Pay Centre study shows that 25 of the UK’s top 100 companies have taken a 20% pay cut in line with pay for furloughed workers. Some CEOs have taken bigger cuts. Long-term incentive awards have been scrapped or put on hold; remuneration committees have been wrestling with decisions about bonus awards for the past financial year and bonus targets for the current one. Executive pay is not significant in relation to the value of the biggest companies but cutting it shows solidarity with the cuts enforced on the, sometimes, large numbers of employees whose costs are significant to a company, however large, which has seen its business fall away as a result of the pandemic.

Cuts in CEOs’ pay increase the, already high, level of attention on executive remuneration and it is unlikely, perhaps, that executive pay will ever get out of the fire. However, the current situation provides an opportunity to re-evaluate some of the accepted norms about incentive plan design, which might help to lower the temperature.

In the run-up to the current crisis, executive pay has been criticised, including by government, for being too complex and too high, with many arguments for and against. Executive incentives (both bonuses and long-term incentives (“LTIs”), attacked for neither aligning executives’ and shareholders’ interests nor linking pay to performance, have been singled out for particular criticism.

Annual bonuses tend to be based on a range of financial measures, usually a form of profit or profit/return measure, and personal performance measures, likely (but not exclusively) to be qualitative. ESG factors are now seen (rightly) to be an essential focus for boards. Remuneration committees are strongly encouraged to introduce ESG measures into their executive incentive plans. Many bonus plans now include ESG targets but the introduction of another set of performance criteria does not help to limit complexity.

LTI design has evolved to the point where companies are now encouraged by shareholder guidance to adopt plans which their remuneration committees believe are right for the company and support its culture, remuneration philosophy and business strategy. However, relative TSR and EPS continue to feature high on the list of performance measures. Arguments in favour of replacing traditional LTIs with restricted share schemes (about which there is a separate article in this Newsletter) are gaining ground but restricted share plan proposals are still treated with suspicion by some shareholders.

On 27 April, the IA published guidance for UK listed companies on shareholder expectations regarding the operation of executive incentive plans as a result of COVID-19. Surprisingly, the IA guidance makes no reference to restricted shares. A summary of the key points in this guidance is as follows:

• Companies which have cancelled dividends are expected to consider how this should be reflected in remuneration policy; including use of discretion and malus

• Remuneration committees are not expected to amend performance conditions for annual bonuses or “in-flight” LTIs

• No adjustment to grant size for 31 December year-end companies if share price fall is wholly related to COVID-19; but remuneration committees are expected to take action to avoid windfall gains

• In relation to LTI grant size and performance criteria for new grants, remuneration committees must:

– decide whether to make or to defer awards; the guidance sets out a number of options

– explain their actions and how they will avoid windfall gains and ensure outcomes reflect executive performance and the experience of shareholders and other stakeholders, including employees

– making maximum awards after a substantial share price fall is discouraged

– performance conditions may be set up to six months after the award date; the performance measurement period should be at least three years but, if performance measurement periods are reduced, award sizes should be reduced accordingly

• Any additional capital raised or government support sought should be taken into account in outcomes for executives; the guidance warns of serious reputational ramifications if pay and conditions of the wider workforce are not taken into account

• Companies which have spent time consulting shareholders on a new remuneration policy to be put to their forthcoming AGM will not be expected to rewrite that policy; but committees should consider if any proposed increases in variable pay for 2020 are appropriate

• Committees must balance the need to incentivise executives when management are being asked to show resilience and leadership and to ensure that executive pay takes account of the interests of shareholders and other stakeholders, including employees.

LTIs and bonuses are likely to be part of executive remuneration packages throughout and after the current COVID-19 crisis. They serve a number of purposes. Bonuses increase the focus on key performance measures and actions so as to enhance business performance. They also enable companies to increase the value and competitiveness of remuneration in a way that is justified by company performance or to reduce costs when company performance is poor. Equity-settled LTIs align executives with shareholders.

The current reality is that cash is the only KPI. For the present, many companies are in survival mode and cash is fundamental to their survival. In better (normal?) times, cash (not TSR, EPS or, even, a year’s profit) is essential for sustainability and growth. A company’s ability (or its potential ability) to generate cash goes directly to its worth. Cash and cash-flows determine a company’s ability to:

• reinvest in the future of the business and fulfil its commitments to the community and the environment

• pay suppliers

• provide returns to shareholders and increase market value

• pay down debt

• pay executives and the wider workforce.

Cash, therefore, is crucial to developing and maintaining a sustainable business, not just in these unusual times but in better times, too, whatever the market or wider economy is doing.

Incentive policies based on the sources, generation, conservation and uses of cash would provide an opportunity to focus executives on a constant factor, essential to creating value and sustainability in any business. Requirements for remuneration committees to take account of ESG factors, act fairly in relation to the wider workforce and other stakeholders and engage with shareholders to explain their proposals and decisions would continue to be just as relevant and important as they are now.

For further information or to discuss this article, please contact Paul Norris.

COVID-19 and its impact on pay in the UK’s Private Equity / Venture Capital Industry

COVID-19 and its impact on pay in the UK’s Private Equity / Venture Capital Industry

As with all parts of the financial system, this virus pandemic has created huge challenges for private equity and venture capital fund managers, management teams and employees of investee companies, as well as for institutional investors. PE and VC fund management teams are working tirelessly to guide and support their portfolio companies.

From our conversations with our Private Equity friends and clients, for the most part their biggest concern at this time is for their investee companies. Of course, they are not able to visit them and this has created issues. Interaction with the businesses they invest in is crucial for PE and VC fund managers in helping them to make critical investment decisions; to what extent do they need help, whether in terms of advice, regular communication or a new injection of funding?

In our survey published in October last year, a significant majority of participating firms were expecting to increase the size of their investment teams in 2020. Our perception is that, for most firms, new recruitment of investment professionals has been put on hold.

Institutional investors are also very concerned, understandably, about the effects of the pandemic on their fund investments. They are requiring regular information flow, as well as regular financial updates. Hence the need for more IR and finance roles in the industry. We hear that there is some activity in the PE and VC recruitment arena – a number of firms are needing to bolster their finance and their investor relations functions at this time to help deal with this extra workload.

From what we are hearing in the market, very few new deals are happening at present. Those that are in train are for the most part being delayed and in many cases valuations are being reassessed.

There is, however, no sign as yet that any firms are looking to let go of any of their investment team members. It is all hands on deck for most firms, albeit largely firefighting (in their portfolio companies) rather than trying to find new deals.

This will come later. It will take some time before a sense of stability will return to the deal doing process and before valuations can be looked at and agreed in a reliable manner. This may not happen until Q4. But once this starts to happen, we are sure that there will be many interesting opportunities for PE houses to find and acquire new investments at attractive prices.

The fact that there is so much dry powder in the industry means that for the large majority of fund managers, they will need to retain all their existing talent and in due course they will need to recruit new talent. They will need more people to execute the new deals that surely will come through, as well as to help look after their existing portfolio of wounded investments which will take some time to recover from this economic bombshell.

We would expect that bonus levels for the current year for below partner level grades are most likely to be at around the same level as they were for 2019. Firms will need to reward their investment teams who will in most cases be having to work extremely hard throughout these difficult months.

2020 will be a tough year for many PE and VC investment professionals. We expect that the partners in these firms will recognise this and will realise that they will need to reward them accordingly. Otherwise we suspect that the more adventurous and the most talented of them will look elsewhere.

For further information contact Margarita Skripina or Nigel Mills.

Free Remuneration and Reward support sessions

Free Remuneration and Reward support sessions

To all our clients and contacts: we know things are tough for businesses right now.

Many of you will have done all you can to set your business up to deal with the lockdown and will now be thinking about what needs to be done to help ensure your business emerges successfully from this difficult period.

We want to help.

MM&K has been going for more than 45 years. In that time, we have supported our clients throughout a number of significant economic downturns and have seen what needs to happen to come out stronger.

People are key to any business. Starting today and continuing for the foreseeable future, our senior team will be offering free of charge consultations to discuss retaining, focusing and motivating management and staff throughout periods of economic uncertainty. From share plans to succession planning, from corporate governance to culture, we have seen and experienced many different situations and are happy to share our thoughts and ideas.

We would also be happy to just sit down and listen to what is concerning you most during this time of change.

As we would like to help as many businesses as we can, consultations will be limited to 20 minutes. To register for a conversation, please either email your regular MM&K contact directly or drop us a line with a few details at support@mm-k.com and we will get back to you.

Nigel Mills: nigel.mills@mm-k.com

Paul Norris: paul.norris@mm-k.com

Stuart James: stuart.james@mm-k.com

Margarita Skripina: margarita.skripina@mm-k.com

Advice for Rem Com Chairs in the light of Covid-19

Advice for Rem Com Chairs in the light of Covid-19

We are now living in the strangest of times, certainly the most difficult that the vast majority of us will have ever experienced. We are, for all intents and purposes, in unchartered waters as far as executive remuneration decisions are concerned.

However, we at MM&K have seen major economic downturns on a number of occasions in the past and we have learnt something from those.

We feel very strongly that businesses need during these hard times to try to maintain the loyalty and support of all their employees, including their executives. Companies can do this by treating all their employees fairly and with respect during this period. It is vitally important that when the economic tide turns around and when this pandemic is over, businesses are able to call upon their executives and employees to get back to business at a time when those individuals feel enthusiastic, motivated and appreciative and not when they might all be looking to find a new employer because they felt that the business did not treat them fairly or with respect during the hard times.

Clearly, each company and each business will be different. Some (the few) may be benefitting financially from the pandemic, such as supermarkets and some pharmaceutical and medical appliance businesses. For these firms one would advise that for their executive remuneration policies, it should be business as usual, albeit with some recognition of the huge extra efforts being put in by executives and staff.

For other types of businesses, the current situation and the outlook may appear bleak.

It is for these companies that the following advice and commentary is mainly aimed at.

Base Salaries

For those companies with 1 January and 1 April salary review dates, most of these will have agreed and communicated the salary increases (if any) for the current year and these will have been implemented. In general, we have seen very modest inflationary increases in base salaries, typically at the 2% or 3% level, for executive directors. A number of companies with 1 April review dates have made a decision to defer any increase in salaries for six months. We are supportive of companies doing this where their business is suffering and recommend that it should be presented as a deferral and not as a decision to freeze salaries for this year.

In recent days we have also seen a number of companies decide to reduce the salaries of their executive directors and senior executives on a temporary basis until business is back to normal. Clearly this is happening in businesses where the Government’s enforced lockdown has had a dramatically negative effect such as housebuilders, leisure businesses and non-essential retailers. The reduction in salaries has tended to be in the 20% to 40% range and in most cases it has been structured as a deferral and not a permanent loss.

Clearly each company will need to react to their own particular circumstances.

However, for most companies who have reasonable levels of reserves and where their business is able to continue, albeit at reduced levels, we believe that companies should keep paying salaries to executives in full where they can. Even PIRC (Pensions & Investment Research Consultants Ltd, Europe’s largest independent corporate governance and shareholder advisory consultancy) seems to accept this. In a recent letter to all listed companies’ company secretaries it has stated that “PIRC calls on companies to suspend all payments to executives other than basic salaries with effect from 1st April.”


(a) Bonuses payable for last year’s performance

For those companies with December year ends, most of these companies will have paid the cash elements of their year end bonuses by now. We are aware though of some companies that have deferred the physical payment of cash bonuses for six months (i.e. to September 2020) and have retained a discretion to defer the payments for longer. This seems sensible for those firms that have been severely impacted by the current situation.

For most of those companies with March year ends, the decision as to what level of bonuses should be paid and whether they should be paid in the normal timeframe is still to be taken.

PIRC are suggesting no cash bonuses should be paid from now on.

We do not agree with this. We do recognise that conserving cash will be an important factor for many businesses, so this may necessitate either a deferral of bonus payments for six or nine months or possibly paying part or all of bonus entitlements in shares, possibly with just a one year restriction on selling.

We do believe that simply cancelling bonus payments for senior executives because there is some political pressure to do so will not endear companies to their executives in the future. The same applies to all employees. If bonuses have been earned because of historic performance, they should be paid, although if the finances of the business require it, yes of course payments should be delayed. If paying bonuses in shares is an option for companies, we believe that this may be a particularly attractive idea and executives should be supportive of this, especially given that they may consider their company’s share prices to be low at the moment. Institutional shareholders should also be supportive of this approach, recognising that it will help businesses conserve cash as well as further align management’s interests with shareholders.

For most companies with March year ends, bonus payments for executives are not made until after the company has had its accounts audited and it has announced the results to the market. We would advise remuneration committees to alert executives to the fact that the payment of bonuses this year may be delayed because of the current economic uncertainty, or may be paid in company shares. Remuneration committees could even consider offering executives a choice between deferral or payment in shares, where their remuneration policy allows.

(b) Setting annual bonus targets for the current financial year

For those companies with December year ends, they will by now have agreed the short term bonus performance metrics and communicated these to executives. In a large number of companies, these metrics will already appear out of reach.

For these companies we believe that it will be appropriate sometime soon for the remuneration committee to let the executives know that the committee recognises this and that it will use its discretion to review the bonus metrics at say the half year stage when it will consider whether revised targets aimed at incentivising and rewarding performance in the second half may be appropriate. Of course, it is quite possible that even at the end of June, there may still be no real clarity of what will happen in which case the committee may need to adopt a much more discretionary approach to the determination of bonuses come the year end.

For those companies with financial years commencing on 1 April, in most cases we would recommend that remuneration committees should refrain from setting any targets for the new financial year until there is some more clarity as to what the effects of the pandemic will be. In the meantime, boards should be focusing on what their short term KPIs are in these circumstances and communicating these to their executives as well as to the wider workforce. It is quite likely that these KPIs will be different to the normal ones that the executives are used to seeing and being bonused on. Committees may wish to communicate to executives that year end bonuses are still possible but will be based more on how successful the company is in achieving these new (and maybe temporary) KPIs.

Having said all that, remuneration committees will need to take into account that the likes of the Investment Association and ISS will expect to see much lower bonuses being paid for current year performance if the effect of the virus has resulted in a significant fall in profits and / or share price. Likewise, if the company has decided to cut its dividend payments to shareholders.

LTIP Awards

In our experience, many companies have held off from making new LTIP awards this year. This would seem sensible. We are in extraordinary times and it is nigh on impossible for companies to predict what might happen over the next twelve months let alone over the next three to five years.

Most company LTIP rules do allow awards to be made at times outside of the normal periods (typically within thirty days after the announcement of results) and we would suggest that remuneration committees take advantage of this to see if things become a bit clearer over the next two to three months.

Another complicating factor revolves around what quantum of awards (in terms of number of shares) companies should grant in the current climate where in nearly all cases share prices have come down by such a large amount. Since 2 January, the FTSE All Share index has fallen by nearly 30%, while the FTSE Small Cap has fallen by just over 30%. Institutional investors will expect to see companies not taking ‘full advantage’ of these share price falls by basing award levels on a historically higher share price, or possibly simply on typical historical award levels (in terms of numbers of shares).

The current circumstances should also provide remuneration committees with an opportunity to consider whether the performance metrics that the company has used previously remain the right metrics for forthcoming awards. Clearly care will need to be taken if the committee decides that the metrics should be different in that this may go against the remuneration policy that has been approved by shareholders. This might lead some companies to change their remuneration policies at their forthcoming AGMs to provide greater flexibility for the remuneration committee in terms of types of LTI awards and the performance measures applying thereto.

One possible outcome for a number of companies may be a decision to change their LTIP policies more fundamentally and move over to just awarding restricted stock rather than performance shares. It is in these types of situations that the benefits of awarding restricted stock on an annual basis really stands out. The decision each year is much simpler. There is no need for companies and remuneration committees to agonise over the setting of long term performance metrics or for participants to worry that their past awards are now not going to vest because events have occurred which are outside their control. Some companies are considering making this change now. For many they will need to change their remuneration policy to enable them to do this. It is certainly something that we believe remuneration committees should be looking at.

We will be writing a separate article in the coming weeks on the concept of restricted stock or deferred share awards which we will be circulating to all our contacts.

All employee share schemes

The recent falls in share prices will have shocked many employees participating in company share plans. However, those employees in SAYE share option plans should take comfort from the fact that their savings are protected and that they can cash those savings in at any time.

We would suggest that now may be a good time for companies to think about making a new Sharesave invitation to employees, offering them the opportunity to buy into the company’s shares at an attractive price. We also suggest that for those companies that have not got an all employee share plan, now would be a really good time to put one in. Institutional investors have come out recently suggesting that they are supportive of companies having such plans. It should also be well received by employees, if marketed in the right way, instilling in them a feeling that they are recognised as being extremely important to the business.

Companies may also take the opportunity of considering the introduction of a share incentive plan (or “SIP”) through which employees may be gifted some free shares (in a tax efficient manner) in recognition of their efforts through these difficult times.

We will be writing and publishing a separate article in the coming weeks on the subject of all employee share plans which will consider further the relative merits of share incentive plans and SAYE share option plans and how introducing such plans may really help with your employee motivation and engagement.


If you wish to discuss anything arising from the above commentary, please contact your usual contact at MM&K or if you do not have a usual contact please email any of the following executives:

Nigel Mills: nigel.mills@mm-k.com

Paul Norris: paul.norris@mm-k.com

Stuart James: stuart.james@mm-k.com

Margarita Skripina: margarita.skripina@mm-k.com


Please note that this article is intended to be a summary of our thoughts and recommendations for remuneration committees in these most challenging of times. The advice given in it is meant to be of a general nature and whether it is applicable to a particular business or company will depend on that company’s actual circumstances. We cannot accept any responsibility for actions taken by any company as a result of reliance on any statements made in the article.

Budget 2020 – some things you might have seen and some of the things lost in the details

Budget 2020 – some things you might have seen and some of the things lost in the details

Having had an opportunity to revisit the recent Budget, it really can be seen as being a mix of direct responses to the COVID-19 outbreak, as well as planning for the future (including in a post-Brexit world!).  

Business Loan Scheme

Of the measures designed to help with the current situation, one of the most talked about so far has been the creation of the Coronavirus Business Interruption Loan Scheme (CBILS).  

The scheme is open to almost every UK-based business with a turnover of £45m or.  Interestingly, whilst the budget documentation indicated a maximum loan amount of £1.2m, this has now increased to £5m. 

The loans are designed for “healthy” businesses who would otherwise be viable business concerns, were it not for the short term effects of the COVID-19 outbreak.

Whilst the Government has indicated that there is no limit to the funding, the facility is initially only available for six months and, therefore, anyone who qualifies and wishes to benefit from this should consider utilising it sooner rather than later

Time to Pay

In comparison to the offer of business loans, one of the measures highlighted under the Budget for immediate effect – HMRC’s “Time to Pay” Scheme – has received less attention.  However, for businesses in immediate difficulties, this may be a much more practicable offering.

Time to Pay was successfully used in response to flooding and the financial crisis, giving businesses a time-limited deferral period on HMRC liabilities owed and a pre-agreed time period to pay these back. Given that tax liabilities can be a major cost, this may be a real life-line for companies who could benefit from freeing up cash.  Time to Pay arrangements are tailored solutions and, in our experience, can effectively lead to much better cash flow conditions than having to meet third party loan repayment terms.

Entrepreneurs’ Relief (“ER”)

In terms of changes with longer term impact, the decision to amend Entrepreneurs’ Relief was perhaps unsurprising – although it will have been a real disappointment for those who following the introduction of this Relief around the time of the last economic downturn have been steadily growing their businesses over the last 10 years.  

It should be noted that the £1m rate was similar to the levels of the old “Retirement Relief” which it replaced and one would hope that with this reduction, ER will remain safe from further future cutting.  Importantly, the retention of the connection of ER with awards of EMI Options continues to make these important tools in retaining and attracting good people.

EMI Review

Finally, it would appear that, as part of the post-Brexit landscape, EMI Options will be used to encourage further levels of innovation and enterprise in the UK economy.  

It will be interesting to see how these conversations develop and MM&K will participate fully in any Government consultation on this topic.  Changes that we would certainly encourage would be the extension of the plan to larger organisations and to a wider range of businesses.  It would be particularly beneficial to the increasing numbers of companies being financed and owned by Private Equity, Venture Capital and the wider Alternative Investment community,  

For further information about the issues raised in this article or to discuss any questions you may have, please contact Stuart James

258 non-executive directors share their views on Life in the Boardroom

258 non-executive directors share their views on Life in the Boardroom

Less than half of non-executive directors say they receive timely and adequate management information; yet 79% feel that their Boards are fully effective. These are just two of the key findings from the 2020 Life in the Boardroom survey report, published by MM&K.

Life in the Boardroom is unique insofar as data is collected direct from individual directors, not from company staff or published media, such as annual reports and accounts. Data for the 2020 report was collected and analysed towards the end of 2019. The survey is published biennially and we will start the process of inviting participants and collecting data for the 2022 report next year.

The survey is extensive. 258 individual directors representing 517 appointments (of which 210 are Board Chairs) contributed data for the 2020 report. The range of companies represented is correspondingly extensive:

Directors from 15 industry groupings participated. Financial services; IT, media and telecoms; support services; aerospace, manufacturing and construction are the most widely represented sectors.

In addition to information about fees and fee movements, the 2020 Life in the Boardroom report includes data on share ownership, time commitments and the activities on which time is spent. It also contains insights into individual directors’ views about Board appointment practices, Board effectiveness, development and evaluation and governance (including engagement with shareholders and proxy agents, executive remuneration and the consideration of ESG factors). Life in the Boardroom is able to include these insights because we collect data direct from individual directors.

The 2020 Life in the Boardroom survey report is now available. In return for providing their data, each participating director receives a complimentary copy. Non-participants and companies can purchase a printed copy of the report.

To purchase a copy of the 2020 Life in the Boardroom survey report, please click here

For further information about Life in the Boardroom, please contact Margarita Skripina or Paul Norris.


The gender pay gap is narrowing. However, females are still under-represented at the more senior management levels especially in male dominated sectors

The gender pay gap is narrowing. However, females are still under-represented at the more senior management levels especially in male dominated sectors

The Gender Pay Gap Regulations, known as the Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 came into force in the UK in April 2017. The regulations require all private and non-governmental, nonprofit organisations with 250 or more employees to publish data on the average difference between the pay of men and women.

The introduction of the regulations has resulted in a decrease in the Gender Pay Gap on average across UK companies. For example, the Gender Pay Gap halved from almost 20% in 1997 to 8.9% in 2019 among full-time employees (Source: ONS).

Source: Office of National Statistics (ONS), Statistical bulletin Gender pay gap in the UK: 2019

The reasons for the narrowing of the Gender Pay Gap vary but the main ones are:

Improvement of workplace flexibility (part-time work, remote working, job sharing etc.);
Encouragement of Shared Parental Leave;
Recruitment of career returners (recruiting individuals who have taken an extended  career break due to caring responsibilities or other reasons);
Internal targets to ensure employee equality goals.

The Gender Pay Gap among full-time professional occupations, skilled trades and administrative/secretarial occupations has notably decreased by nearly 2 per cent in 2019 compared to 2018, according to Office for National Statistics (ONS). In contrast, the Gender Pay Gap widened among the high-paying managers, professionals and senior officials from roughly 14% in 2018 to almost 16% in 2019, indicating increasing inequality at the top level.

The chart below highlights the point that the 10% highest paid women earn a fifth less per hour than the 10% highest paid men (Source: ONS).

Source: ONS, Statistical bulletin Gender pay gap in the UK: 2019

Among common reasons for the Gender Pay Gap at the top level are:

Low representation of females in certain high-paying sectors (e.g. Technology, Energy) in particular at the senior level;
Caring responsibilities and as a result part-time versus full-time work which could slow career progression;
Females working in lower paid sectors (Healthcare, Education etc.);
Equal pay – females earning less for the same job/role as their male peers.

Overall, the situation with the Gender Pay Gap has been substantially improved during the last two decades. However, females are still under-represented at the more senior management levels especially in male dominated sectors. But, there are a number of measures that could help build the female pipeline of talent in the workplace, for example by introducing measures such as flexible working, shared parental leave, recruitment of carers, returners and many others.

2020 MM&K Private Equity / Venture Capital Pulse Survey

2020 MM&K Private Equity / Venture Capital Pulse Survey

This month MM&K launches its 2020 Private Equity / Venture Capital Pulse Survey.

The Pulse Survey is a short survey that focuses on the most recent HR and compensation developments in the UK and European Private Equity / Venture Capital industry. The Pulse Survey is run between and for the benefit of MM&K’s PE/VC Compensation Survey participants, and provides them with an outlook on the most up-to-date trends in compensation and staffing levels in the PE/VC industry.

If you are working in a Private Equity / Infrastructure / Venture Capital House and you believe that your firm might like to participate, please contact Margarita Skripina.

CEO Pay Ratio reporting: introduction, implementation and predicted impact

CEO Pay Ratio reporting: introduction, implementation and predicted impact

The “CEO pay ratio” has become a hot topic after the introduction of new legislation demanding UK incorporated companies listed on the FTSE, NYSE and NASDAQ with over 250 employees to disclose in their directors’ remuneration reports the ratio of their CEO’s total pay to the lower quartile, median and upper quartile total pay of their UK employees. This central issue was discussed at the seminar “Working 9 to 5. What will pay gap reporting mean? Will it change anything?” organised by the High Pay Centre on 19 February 2019. Expert opinion was provided by speakers from different organisations: Tom Gosling (PwC), Alun Humphrey (NatCen Social Research), Deborah Hargeaves (High Pay Centre), Euan Stirling (Standard Life), Janet Williamson (TUC), Charles Cotton (CIPD).

“We are welcoming pay ratio disclosures … they highlight pay inequality. It has been a decade of stagnation for average employees” – stated Janet Williamson, a Senior Policy Officer in the TUC’s Economic and Social Affairs Department. Excessive pay for senior executives and the widening gap between CEO and average employee remuneration has attracted public attention. For instance, in 2017, a £110 million long-term incentive award to Persimmon’s Chief Executive sparked a wave of criticism and generated intense public debate. According to Euan Stirling, an investment director from Standard Life: “Persimmon highlights that something is wrong at both ends of the spectrum, especially at the higher end. We should think about long-term sustainability of the organisations”.

The Companies (Miscellaneous Reporting) Regulations 2018 (SI 2018/860) require disclosures to show a comparison of CEO’s total pay to other UK employees’ earnings at the 75th, 50th and 25th percentile. However, it seems that there is a number of obstacles in the way to calculating the ratios. As Charles Cotton observed, it is “not easy to get the data for reporting … it requires companies to invest into HRIS1”. On the other hand, “companies need to get over the initial hurdle of publication” – emphasised Euan Stirling.

Tom Gosling, a Partner and the head of PwC’s UK Reward Practice, acknowledged that there is a significant difference between the pay ratio and Gender Pay Gap reporting, as “Gender Pay Gap gets into heart of the issue and provides new information to the world, while the pay ratio is not a new piece of data coming out … The new pay ratio reporting is expected to shame companies. But a more productive way is to review the pay at the bottom”. According to Tom Gosling: “By far the most impact on the fair pay principles was the change2 to the UK Corporate Governance Code. It encourages more behaviour change than the pay ratio”.

Undoubtedly, transparency over CEOs’ total remuneration relative to average employee pay should be encouraged. However, a company’s narrative about pay distribution and remuneration principles (who should be rewarded what and why) is more important than a box-ticking exercise on CEO pay ratios.

For further information about the issues raised in this article or to discuss any questions you may have, please contact Natalie Cherkas.


1HRIS or a human resources information system is a form of human resources software that combines a number of systems and processes to ensure the easy management of human resources, business processes and data;

2Refers to the 2018 UK Corporate Governance Code, particularly to the Remuneration Section (e.g. Provision 38 states that “The pension contribution rates for executive directors, or payments in lieu, should be aligned with those available to the workforce”)