MM&K News

  • May 29, 2019

    Creating successful bonus structures – five things to think about

    Whether you think in these terms or not, the way a company sets up, manages and then settles its bonus plans will have a direct impact on the behaviour of people within the organisation. Here are five thinking points in respect of creating successful bonus plans for 2019 and beyond:

    1. Be clear about the company’s real values
    This is the single most important element in achieving a successful bonus structure. Many companies in the “open communication” era will have a set of values describing how they want people to behave – these may be found on the walls of the office or in a handy booklet. However, underneath this will be the “real” values of the company – the values which may not make a good soundbite but which accurately describe how your enterprise functions most successfully. Taking the time to unlock this is crucial in all aspects of remuneration design – including bonuses.

    2. Make sure it is affordable
    Some might consider this obvious but it is crucial to make sure that payments are tied to affordability. There are few things more demoralising than bonus numbers having to be scaled back due to miscalculations or when a line manager has to revise down bonus levels due to wider company bonus issues. It is possible to put bonus plans in place where this issue is mitigated or even eradicated.

    3. Back up bonus plans with hard decisions
    If you have created a bonus structure which rewards people for ‘how’ they have done things as well as for ‘what’ they have done, then a potential management decision may arise when a “star performer” delivers results in a way that goes against the expressed values of the company. Will the leadership team be willing to risk upsetting the star performer by not paying out some or all of the bonus? If they are not then the company should reconsider the structure of the bonus plan, as a bonus plan which rewards “bad” behaviour will send a clear message that the values of the business can be ignored.

    4. Decide how widely the bonus plan should apply
    It is tempting, especially when money is perceived to be tight, to decide to reward only those who are “high performers”. However, research evidence on this point indicates that bonus plans created in this way may be more harmful than plans which provide bonuses across a wider range of performers. Consider ways in which your bonus plan could have wider applicability.

    5. Communicate regularly
    The most successful bonus plans should form part of the management tool kit of the business and not just be something that is pulled out at the end of the year. There are a number of things that can be done to embed the bonus plan within the review process in order to get the most out of it.

    For further information or to discuss any questions you may have, contact Stuart James.

  • April 29, 2019

    Launch of MM&K’s 2019 UK and European Private Equity / Venture Capital Compensation Survey

    This month MM&K Launched its 24th annual Compensation Survey for the European Private Equity and Venture Capital Industry.  The 2019 Survey will provide participants with information on both quantum and structure in respect of salary, bonus plans, carried interest plans and co-investment plans. Through participation in our survey, participants will obtain data which allows them to:

    • Make the best choices on remuneration structures for their businesses

    • Have meaningful conversations on remuneration with partners and employees

    • Improve staff retention and morale

    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 or request your questionnaire here.

    To find out more about MM&K 2019 PE/VC Compensation Survey click here.


  • April 23, 2019

    Gender Pay Gap – three things for businesses of any size to consider

    Legally, the reporting of the Gender Pay Gap (“GPG”) is only required by companies that have 250 or more employees who are based in England, Scotland or Wales. However, there are some important lessons for all organisations in respect of remuneration and the issue of divergence on gender pay can become an issue for any commercial enterprise.

    Here are three points to consider with the passing of the second anniversary of reporting on the GPG.

    1. Every company will have a GPG
    Unless you have exactly the same number of people of each gender at each of the levels within your organisation, it is a mathematical certainty that you will have a GPG inside your organisation, based on the way that the reporting model is constructed.

    Nonetheless, establishing your GPG – and then analysing it in order to understand how it has come about – is likely to be the most productive first step that an organisation can take to review its recruitment and promotion policies.

    2. “Blind recruitment” may not be the answer
    There is a notion that, either consciously or unconsciously, people tend to hire people in their own image . In order to overcome the first hurdle to this – getting a more diverse range of candidates through the initial CV vetting process – some firms have started using “blind” copies. These are documents which remove any trace of a person’s gender, or indeed any other area of diversity which may be from the subject of bias.

    However, whilst there is some superficial logic to this, a number of studies, most notably a high profile one undertaken in Australia (see here for coverage**), indicates that this method does not always deliver the intended outcomes.

    In our experience, better recruitment can come from identifying the core values of the business itself and then using these as guiding principles to develop and establish everything from recruitment processes to bonus and incentive structures. Given that values are not gender specific, using this approach has the advantage of making the recruitment process fairer to all.

    3. Pay gaps may really be rewarding certain characteristics
    Whilst some GPGs (or even part of a GPG) may be explained by “structural” differences, such as the number of people of each gender at each level of the organisation, among people who do similar jobs, the difference may not be so much about gender but may instead reflect varying individual skill-sets.

    Discretionary pay awards might favour the most skilled negotiators but, whilst it would not be appropriate to ‘punish’ those who have strong negotiating skills, it would be appropriate to consider whether people who are hired for a different set of skills might need a different approach to their remuneration. There may be short term gains from supressing the remuneration levels of ‘quieter’ employees, but such an approach often leads to growing resentment and can become self-defeating. Once resentment over remuneration takes hold, it can lead to people making a “no way back” decision to leave a company for new pastures. It may, therefore, be more cost-effective for remuneration policy to take account of a person’s skill-set and motivators, as well as their job role.

    For further information or to discuss any questions you may have, contact Stuart James.

  • April 20, 2019

    2019 MM&K Private Equity / Venture Capital Breakfast Seminar

    In early April, MM&K held a PE/VC Breakfast Seminar for the participants in its last three PE/VC Compensation Surveys. At the seminar the 2018 Landscape of the Private Equity / Venture Capital industry was discussed. We also discussed the outlook on what 2019 may hold for the industry.

    Prior to the event, MM&K organised a 2019 Pulse Survey, that was sent out to all of the invitees to the seminar, to get a picture of the most up-to-date Remuneration and Staffing trends in the UK and European PE/VC industries. Also, some of the interesting insights and findings from the 2018 MM&K PE/VC Compensation Survey were presented to compare with the results of the 2019 Pulse Survey.
    The event opened with a networking opportunity for all the attendees and closed with a vocal Q&A session.

    2019 MM&K Private Equity / Venture Capital Pulse Survey

    This short  Pulse Survey focuses on the most recent developments in the UK and European Private Equity / Venture Capital industry. The Pulse Survey is run 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.

    91% of participating houses indicated a salary increase across all of their professionals at their most recent review date.  However, only 15% indicated increases in bonus levels for their investment professionals (over 2018).

    About 70% of the participants indicated they focused on selected groups of staff when determining bonuses for last year’s performance. 86% of firms expect an increase in the number of investment professionals in 2019.

    All in all, there remains perhaps a surprisingly high level of confidence in the industry, which is encouraging to see.

    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 or request your questionnaire here.

  • April 18, 2019

    Recent HMRC announcements relating to EMI options

    HMRC recently made new announcements about tax-advantaged Enterprise Management Incentive (EMI) share options in its Employment Related Securities Bulletin 31 (21 March 2019) and in updated Share Valuations guidance (1 April 2019).

    Errors in notification of EMI options to HMRC

    When a company grants an EMI option, it must notify HMRC of the grant through the online reporting system within 92 days of the date of grant; otherwise the option will not qualify for tax exemptions.

    If the company realises that it has made a mistake in its notification about the grant of EMI options, the consequences depend on the period which has elapsed since the date of grant.

    • If it is still within 92 days of granting the options, the grants can be re-notified through the online system within that 92-day period. The originally notified options should then be cancelled on the next EMI annual return.

    • After 92 days, but within nine months of the original grant date, provided it has a reasonable excuse for not re-notifying within the 92-day deadline, the company should notify HMRC of the facts. If HMRC accept the explanation, they will issue a “reasonable excuse code” which will allow the company to re-notify the corrected options through the online system.  Again, the originally notified options must be cancelled on the next EMI annual return.

    • After nine months of granting the EMI options, the legislation does not allow errors or omissions to be corrected. The company must notify HMRC of the error.  If HMRC regard the error as material and that it may cause the options to fail to meet the legislative requirements, the options will remain in existence but will not benefit from the EMI tax exemptions.

    Impact of IFRS 16 on a company’s gross assets

    The tax advantages of EMI options are intended only for small companies. The EMI legislation therefore does not allow EMI options to be granted if the company’s gross assets (including the gross assets of its subsidiaries) exceed £30 million at the date the EMI options are granted.  (The test does not need to be met at the time of exercise.)

    HMRC has updated its guidance on the gross assets test to confirm that if a company uses international accounting standards, IFRS 16 will apply from January 2019 in determining the value of the company’s assets on its balance sheet.

    Working time declarations by EMI option holders

    At the time of grant of EMI options, the employees must sign written declarations that they spend at least 25 hours each week or, if less, 75% of their working time working as employees for the company or a qualifying subsidiary.  Employees have to make new working time declarations for each new grant of EMI options.

    HMRC have confirmed that the declaration must be made at the time of option grant and it cannot be backdated.

    Restrictions on shares to be acquired through EMI options

    The option agreements for EMI options should contain all the terms and conditions of the options and any restrictions on the shares to be acquired on exercise of the options.

    HMRC have stated that where restrictions on shares have not been notified to option holders at the date of grant the company should seek to remedy this as soon as possible.  HMRC’s advice should be sought as to whether any proposed retrospective action could result in the options losing their tax-advantaged status.

    Valuation of shares for EMI options

    Where shares to be acquired on exercise of EMI options are not listed on a recognised stock exchange, the value of the shares must be agreed by HMRC Shares & Assets Valuation (SAV) before the date of grant. This may be crucial in determining the taxable amount when the options are exercised.

    In practice, where the shares are traded on AIM, SAV often agree to accept the quoted AIM price.  However, the value for unquoted shares must be based on an accepted share valuation methodology.

    HMRC have confirmed that agreed valuations will remain valid for 90 days.  The previous limit was 60 days.

    For further information contact Mike Landon

  • April 17, 2019

    New Directors’ Remuneration Reporting Regulations

    On 10 April 2019, the Government laid before Parliament a new set of revisions to the Directors’ Remuneration Reporting Regulations (DRRR or “Schedule8”).

    After the wholesale revision to the DRRR in 2013, the regulations remained pretty much unchanged until July, 2018. The 2018 Companies (Miscellaneous Reporting) Regulations then introduced a number of changes to the Companies Act aimed at improving disclosure and corporate governance. Included in this Statutory Instrument were some key changes to the DRRR, in particular:

    1. The requirement for UK companies with more than 250 employees to publish, in the form of a table, the ratio of the total pay and benefits for the chief executive to the equivalent figure for UK employees at the lower quartile, median and upper quartile. The requirement, starting with FY 2020, is to report the most recent two years and then steadily build up to a nine-year table over time.

    The 2013 regulations required companies to compare the percentage change in the latest year of the remuneration of the chief executive with that of employees of the company taken as a whole; this comparison was to be made for the salary, taxable benefits and annual bonus figures in the single figure table. The 2018 regulations added a pay ratio as well as a pay movement comparison, and added the requirement to report this for a period building up to 9 years.

    2. A second important change was to break-out the impact on remuneration of the effect of company share price changes, both in the remuneration table for the year and in the scenarios charts for future remuneration. The old scenario charts ignored share appreciation completely, which proved a serious omission when the forecasts proved wildly low due to stock market movements.  The 2018 regulations went the other way – the scenario modelling had to assume 50% price appreciation over the plan period.

    As last year’s changes to the DRRR apply for reports for financial years starting 1 January 2019, no companies have yet had to apply them.  But the new 2019 regulations apply to reports for years starting on 10 June 2019, so companies with a year start between June and December will find themselves adopting both new sets of rules at once.

    The Government has introduced the latest changes to the regulations to bring them in line with the 2017 EC Shareholder Rights Directive II (SRD II).  This directive was mainly concerned with flows of information between companies, investors and intermediaries; however, it included some articles aimed at improving the governance of directors’ remuneration.

    It is important to note that, as well as requiring certain specific items of disclosure, SRDII mandated the EC to prepare full guidance on the contents of the remuneration report, and the Commission published this guidance on 3 March 2019.  Had BEIS followed this guidance for the UK regulations, the new DRRR would have become very onerous without adding any great benefit for companies or shareholders.  Fortunately, the guidance is not mandatory and the UK Government has chosen to ignore it and only to implement the specific points mentioned in SRD II.  These are limited in their scope.  The changes in the UK DRRR are as follows:

    1. The pay movement comparison in the earlier regulations has been extended from one year to five years on a “building up” basis. So there are now potentially five years of pay movement comparisons and nine years of pay ratios to be reported.

    2. The pay movement comparison has been broadened from the chief executive to all directors; but not the pay ratio analysis, which is curious. It is not evident that this change provides stakeholders with any insights that go beyond the movement for the chief executive for the additional work involved by the reporting company.   But these changes are necessary to comply with the specific requirements of Article 9b 1. of SRD II

    3. The Single Figure table is required to break out separate totals for fixed remuneration and variable remuneration.

    4. Where aspects of directors’ remuneration are required to be disclosed under the regulations, it is made clear that this includes the chief executive and deputy chief executive (if any). This prevents the company from hiding the chief executive’s pay by excluding him or her from board membership.

    5. The regulation introduces a privacy restriction on including certain categories of personal data. Subject to this, the directors’ remuneration report must be kept available for a period of at least ten years.

    6. Throughout the report, the requirement to report has been broadened from “quoted companies” (ie UK companies on the official list of a main exchange) to include “traded unquoted companies” (this covers companies that were previously listed on a main exchange but are no longer listed. It does not include AIM-traded companies.)

    7. The regulations expand on the detail that is required to be given about the decision making process for the determination, review and implementation of remuneration policy.

    For further information, contact Damien Knight

  • April 16, 2019

    Don’t miss the deadline for online share plan returns

    The deadline for submitting annual online employee share plan returns to HMRC for the tax year ended 5 April 2019 is 6 July 2019.  This is also the deadline for registering new plans which were first operated during that tax year.

    We recommend that companies should try to complete registrations and annual returns well before then, as there are often last minute technical hitches.

    Which plans should be reported?

    Returns must be submitted for each individual share plan which is registered with HMRC.  Plans include:

    Tax-advantaged SIP, SAYE and CSOP

    If the company operates more than one of any of these plans, for example if a plan was replaced with a new one after 10 years (as opposed to being renewed), there must be a separate return for each plan.

    Tax-advantaged EMI options

    A single return should be made in respect of all Enterprise Management Incentive (EMI) options, even if more than one plan is operated or if there are no formal plan rules.

    “Other” share plans

    All other non tax-advantaged share plans (often referred to as “unapproved”) or arrangements for employees to acquire shares should be reported as “Other” plans.

    A company can register all these arrangements as a single “Other” plan or as two or more separate plans.  If more than one “Other” plan is registered, a separate annual return must be made for each.

    Combined plans

    Where a set of rules contains more than one type of plan, for example an unapproved share option plan with a tax-advantaged CSOP schedule, this should be reported as two separate plans.

    Which events should be reported?

    The annual return should provide details of:

    • the grant, exercise, cancellation, lapse or release of share options

    • the grant, vesting, cancellation, lapse or release of other conditional share awards (eg under a standard “LTIP” or deferred bonus)

    • all share acquisitions under a SIP or through other employment-related arrangements such as the award of growth shares or other restricted securities

    • SIP shares forfeited or ceasing to be subject to the plan

    • other taxable post-acquisition events, including the lifting of forfeiture restrictions on shares.

    In the case of a tax-advantaged SIP, SAYE or CSOP, the company must also report amendments to “key features” of the plan, ie those which meet the requirements of the legislation for that plan, and adjustments to SAYE or CSOP options following a variation in the company’s share capital.  The company must declare that the plan continues to meet those requirements after the changes have been made.

    Different arrangements for EMI options

    You should note that, to qualify for tax relief, the grant of tax-advantaged EMI options must be reported online within 92 days of the date of grant.  If no EMI arrangement has already been registered, this must be done before the grant can be reported.

    We recommend that companies should print out HMRC’s acknowledgement of option notifications, as it will not be possible to access this again at a later date.

    What if there have been no reportable events?

    If there have been no reportable events during the tax year, to avoid penalties the company must still make a “nil return” for each of its registered share plans.

    If a plan has been terminated, the company can specify a “date of final event” on the annual return.  A final online return must be submitted for the tax year which contains the “date of final event”, so it may be wise to specify a date towards the end of a tax year rather than at the start of a new one.

    Even if a plan has been registered by mistake, the “date of final event” must be specified and a nil return submitted for the tax year.

    Penalties for late and incorrect submissions

    If a share plan return is not submitted by the 6 July 2019 deadline, a first late filing penalty of £100 will be issued.

    Additional automatic penalties of £300 will be charged if the return is outstanding three months after 6 July 2019, and a further £300 if it is still outstanding after six months.  If a return is still outstanding nine months after 6 July 2019, daily penalties of £10 per day may be charged.

    HMRC can impose a penalty of up to £5,000 for a material inaccuracy in a return, unless this has been corrected by an amended return “without delay”.

    For further information contact Mike Landon

  • March 28, 2019

    Pending changes to Directors’ Remuneration Report Regulations

    On 3 March the European Commission issued new guidelines on the standard presentation of the remuneration report under Directive 2007/36/EC. This was to comply with a mandate presented in Article 9(b)6 of the 2017 revisions to the second Shareholder Rights Directive (SRD II). The guidelines are non-binding and the UK Government has to decide how far it will translate the new guidelines into revised regulations by the deadline of 19 June.


    The original Shareholder Right Directive was issued in 2007 and was concerned with strengthening corporate governance and particularly the rights of shareholders in relation to voting at general meetings. It applied to companies which have their registered office in a member state trading on a regulated market situated in a Member State.  This definition includes Main Board listed companies on the London Stock Exchange but not AIM companies, which fall into the category of “exchange-regulated’ rather than EC regulated.

    In 2017, the EC issued revisions and extensions to the Directive, aimed at strengthening the first Directive and encouraging institutional investors and asset managers to take a longer-term view of the market. One new set of articles focused on directors’ remuneration:

    • Article 9a covered the requirement of companies to prepare a remuneration policy and to submit it for a (binding or non-binding) shareholder vote in general meeting on inception and whenever a material change is made and, in any case, at least every four years. The Article covered the information to be provided in the policy, which is very close in content to that required for UK companies under Schedule 8 (the 2013 Directors’ Remuneration Reporting Regulations, DRRR) as amended by the Companies (Miscellaneous Reporting) Regulations 2018, and the associated voting requirements of the Companies Act.

    • Article 9b covered the information to be provided in the remuneration report (ie the implementation report for the previous year) and the requirements to submit it to a shareholder vote. Again, the requirements are very similar to the UK regulations.  However, 9b(6) mandates the Commission to adopt guidelines to specify the standard presentation of the information laid down. These are contained in the communication from the Commission on 3 March labelled “Guidelines on the standard presentation the remuneration report under Directive 2007/36/EC”.  The aim of the Commission is to achieve a standard format across Europe.  Unfortunately, the requirement is more detailed than the DRRR, especially in relation to individual directors’ performance over time and their pay movements compared to average employee remuneration.

    Fortunately for UK companies, it looks as if the Government does not intend to adopt the detail of these guidelines.   We spoke to BEIS who told us that they are proposing to put a new statutory instrument (SI) in front of Parliament in the next few weeks. It will be accompanied by a table comparing what is already in place in the DRRR with what needs to be implemented under SRD II Article 9. The regulations will be mandatory, but they do not intend to require companies to adopt the full EC guidelines.

    If the new SI is approved by both houses, it will enter into force on 10 June, which is the transposition date for SRD II. However, it will contain various transitional provisions for companies and it will not need to be adopted by companies for reporting until 2020.

    BEIS will be publishing FAQs on the new regulations and the GC100 Investor Group will be updating their own Guidance. BEIS are thinking of appending the final EC guidelines for information, allowing companies, if they choose, to adopt some of the new guideline provisions, if they appear useful.  We got the impression that all this will go ahead whatever the Brexit outcome.

    For further information, contact Damien Knight

    Directive EU 2017/828 amending Directive 2007/36/EC as regards the encouragement of long-term shareholder engagement.

  • March 28, 2019

    FRC consults on Stewardship Code

    The Financial Reporting Council (FRC) has published a consultation paper on a new Stewardship Code that sets substantially higher expectations for investor stewardship policy and practice.  The proposed changes call for higher transparency regarding institutional investors’ stewardship activities and encourages more engagement with companies.  The proposed changes have significant potential consequences for investment organisations and the companies in which they invest.

    What is happening?

    Under the proposed changes, all signatories of the Code would be required to make public disclosures about their stewardship activities.  This could address current concerns about investors’ inadequate engagement with the companies they own.  Although we currently have several corporate governance codes which require companies to engage with shareholders, they place no such obligation on investors.

    Other key proposed changes include requiring signatories to establish an organisational purpose, strategy, values and culture.  This aligns the draft 2019 Code with the UK Corporate Governance Code, which it is designed to complement.   The draft Code also makes explicit reference to environmental, social and governance (ESG) factors.  Signatories are expected to take into account material ESG factors, including climate change, when fulfilling their stewardship responsibilities.

    All signatories would be required to make public disclosures about their stewardship activities and their assessment of how effectively they have achieved their stated objectives.  Reporting would be in two parts: a Policy and Practice Statement upon signing the Code and an annual Activities and Outcomes Report.

    Shareholder Rights Directive

    The FCA is also undergoing a consultation, proposing regulatory measures to implement the provisions of the amended Shareholder Rights Directive (“SRD II”).  The Directive comes into effect in June 2019 and, assuming a transition period for EU Withdrawal is agreed, will need to be transposed in the UK.

    SRD II also aims to improve the effectiveness of stewardship and long-term decision-making in listed companies.  It will do this chiefly by improving the transmission of information in the investment process; therefore, major business impacts on listed companies, institutional investors and intermediaries are expected.  Through increasing transparency and awareness, the SRD II hopes to shed light on the extent to which investors fulfil their responsibility as stewards, of both the companies they hold shares in and the assets they manage for their clients.

    Tasked by SRD II, the European commission has published draft guidelines which recommend a standardised presentation of remuneration reports, subject to consultation until 21 March 2019.  We have summarised the key points in the guidelines:

    • Introduction – a general overview (key events, changes in directors, changes in policy or its application) followed by more details on the performance and business environment and major decisions on remuneration and, where applicable, how the vote or views of shareholders on the previous report were taken into account.

    • Remuneration – reporting each component, divided into fixed, one-year variable and multi-year variable pay

    • Performance metrics and outcomes – for variable pay plans, including minimum and maximum targets, actual performance and how any discretion was applied.

    • Share-based remuneration – share-based remuneration tables.

    • Malus and clawback provisions

    • Comparison of annual change in each director’s remuneration with company performance and average employee remuneration over five years

    • Response to AGM voting – how the vote at the previous general meeting was taken into account.

    Joint discussion paper

    As you may have expected, the FRC and the FCA have teamed-up to tackle the issue of stewardship, publishing a discussion paper on ‘Building an effective regulatory framework for stewardship’.  The paper aims to advance the discussion about what effective stewardship should look like, expectations for financial services firms, and how this can be best supported by the UK’s regulatory framework.  The paper notes that some benefits of effective stewardship – eg higher long-term investment returns – accrue not only to the firm that incurs the cost of exercising stewardship, but also to all other investors.  As such, some investors may not exercise stewardship as fully as they otherwise might and instead ‘free-ride’ on the stewardship of others.

    The FRC’s proposed Stewardship Code aims to both increase the expectations set by SRD II and expand its scope.  The ‘new rules that are due to come into effect under SRD II intend to enhance transparency about how equity investors exercise stewardship and “raise the bar” for stewardship across the market.  However, we are considering whether the UK regulatory framework should aspire to go further than the provisions of SRD II’.

    Beyond the EU

    The EU is not alone in taking steps to improve stewardship.  In November, the US Securities and Exchange Commission (SEC) held a roundtable addressing whether the capital markets system can be improved – in context of the principal/agent problem and investor participation.  The three topics for discussion were the proxy voting process, shareholder proposals and proxy advisory firms.

    Why should remuneration committees be interested in the proposals?

    The consultations currently taking place have significant implications for remuneration committees.  Under the FRC’s proposed changes, signatory fund managers would be urged to look harder at whether companies fit their investment strategies.  Remuneration structures and performance targets play a large role in this.  Further, they would be required to take a more active approach in engaging with and influencing committees.

    Committees should also take note of the proposed Stewardship Code’s focus on ESG issues.  In December, Shell announced that they will be linking executive pay and carbon emissions, becoming the first energy company to do so.  If investors are required to take ESG factors into account, we will likely see more and more companies linking ESG criteria to executive pay in the future.

    The steps taken under SRD II to increase transparency and awareness will have a similar effect, but remember that the requirements under SRD II are compulsory for listed companies and asset managers in the EU (whereas the FRC’s Stewardship Code is voluntary).  Remuneration committee members should be paying particular attention to the European Commission’s remuneration report guidelines.

    What they should be doing in response?

    Remuneration committees have a responsibility to communicate with investors.  Some committees may find it difficult to engage with their investors; some of the more common complaints we have heard include failures to respond (either at all or in a timely fashion) and the use of proxy advisors, who are more remote from the company.  The proposed changes discussed in this article have the power to change this – hopefully, committees will have provided input to the consultations in order to get the best outcome.  They should also be prepared to take advantage of any changes, if and when they come into effect.

    MM&K are experts in advising remuneration committees on a range of issues surrounding corporate governance, regulatory and disclosure requirements.  We have a wealth of experience helping committees communicate with investors.  For queries and further information, please contact Paul Norris or Damien Knight.

  • March 23, 2019

    The AIM Market – heading for trouble in 2019?

    On the face of it, things do not currently look too rosy for the AIM market. There has just been one new IPO on AIM since the turn of the year. In the same period last year, there were nine.

    Indeed, last year as a whole saw a regular stream of IPO’s on AIM. In 2018 there were 9, 19, 6 and 8 listings respectively, per quarter.

    The health of any market is shown, to a greater or lesser extent, by the number of new companies that are willing to go through the time and (considerable) expense to raise finance.

    Moreover, given that Q4 of 2018 saw an almost record breaking number of trade and Private Equity M&A deals (748 in total), it would be easy to conclude that the AIM market is facing trouble with company owners increasingly considering alternative ways of obtaining the finance to either exit or grow their business.

    However, as always when confronted by headlines and statistics it is worth digging deeper to understand the broader picture.

    On a macro level, whilst the 43 admissions of 2018 is down from 50 l in 2017, it is still one more than the 42 that occurred in 2016.  This would seem to indicate that there is no overall downward trend –other factors are likely to be at play.

    The overwhelming weight of evidence indicates that the principal reason for the lack of AIM IPOs so far this year is nervous investor sentiment generally.  There is no shortage of companies seeking admission to AIM.

    We have recent first-hand knowledge of companies who are keen to IPO but have had to delay on advice from their brokers that the market would not buy at a price that would have made the transactions viable.

    It is undeniable that in the short term, the uncertainty of Brexit has caused a pause in making such “public” investments by Institutional investors.  However, monies have been raised and need to be placed in order to grow.  With the comparable difficulties of finding the “right” investment to place PE money, it is likely that, once the markets have settled (hopefully by this summer) a flurry of deals will come to AIM.

    Ironically, whilst there are risks associated with any investment, the requirements of AIM Rule 26 that each AIM company must adopt a corporate governance code, identify the chosen code on its web-site and explain how it complies (or why it has not complied) with that code makes the AIM market a better regulated place for making investments.

    We will continue to watch the AIM market with interest and will provide updates throughout the year.  For further information or to discuss any questions you may have, contact Stuart James.