Corporate law update: 5 - 11 October 2024

This week:

• The Investment Association publishes its Principles of Remuneration for the 2025 season
• Companies House publishes guidance on information-sharing for anti-money laundering purposes
• Draft recommendations are published to transition to T+1 settlement for securities in the UK
• Draft regulations are published to extend payment practice reporting in relation to construction contracts

Investment Association publishes 2025 Principles of Remuneration

The Investment Association (IA) has published its Principles of Remuneration for the 2025 AGM season.

The Principles (which were last updated in November 2022) highlight best practice and investor expectations for publicly traded companies on their executive remuneration arrangements.

This year, although the Principles remain broadly similar, the guidance to remuneration committees has been reworked and simplified to reflect developments in investor expectations. In particular, the detailed sections on fixed and variable pay have been removed in favour of more high-level guidance.

The IA emphasises that the guidance is not a set of prescriptive rules, but rather an approach that is commonly accepted as appropriate for the majority of companies. However, where companies diverge from the Principles, the IA expects them to provide a "suitably comprehensive explanation".

The key changes are set out below.

• The IA has clarified that remuneration policies should deliver remuneration levels that are clearly linked to company performance. (This concept is not new but has been elevated to a new overarching objective.)
• The expectations of remuneration committee members have been expanded to include understanding the company's strategy and building effective relationships.
• The previous requirement to engage with shareholders following a significant vote against a remuneration resolution has been replaced by a broader principle of engaging proactively and constructively to understand stakeholders' views and expectations.
• The IA has removed the previous emphasis on avoiding higher levels of remuneration, instead focussing on justifying why remuneration levels will attract talent and, at the same time, achieve appropriate outcomes for shareholders.
• The guidance now contains an explicit recommendation that variable remuneration be capped.
• The guidance now states that, where an executive director is recruited on a higher salary than their predecessor, the company should explain the decision to shareholders.
• The guidance on pensions has been simplified, but it retains the key principles that rates should be aligned with those for the workforce, and variable remuneration should not be pensionable.
• The guidance on annual bonuses has been reworked to contemplate a little more flexibility on incorporating non-financial metrics into bonuses (with specific guidance on ESG risks) and deferring bonuses into shares. The IA now explicitly states that performance should not be measured over less than one year.
• The guidance on long-term incentives (LTIs) has been rewritten. It contains dedicated sections on performance share plans, restricted share plans, hybrid schemes and value creation plans, as well as overarching principles on technical conditions that should apply to all types of LTI.
• The IA now gives more extensive guidance on executive director shareholdings (both during and post-employment). These include formally setting a minimum holding requirement and the consequences of not achieving it.
• The guidance on recruiting and remunerating new executive directors has been reworked but broadly retains the same themes. However, the IA now explicitly states that companies should not automatically match or provide an increase on the salary of a new executive's predecessor.
• The guidance no longer explicitly warns against retention awards and transaction-related bonuses, instead encouraging remuneration committees to engage with shareholders on any special awards and to justify them.

Our remuneration experts are in the process of putting together a dedicated update on the Principles. In the meantime, you can access the resources below.

Access the Investment Association's Principles of Remuneration for the 2025 season (opens PDF)

Read the Investment Association's press release on its Principles of Remuneration for 2025

Companies House publishes guidance on information-sharing for AML purposes

Companies House has published new guidance on information-sharing, designed to support firms that are regulated for anti-money laundering (AML) purposes.

The guidance is relevant to firms that are required to carry out AML checks. These include (among other businesses) banks, estate agencies, insolvency practitioners, tax advisers, accountancy firms, law firms, trust and company service providers, and casinos.

It deals specifically with new measures for sharing information, introduced by the Economic Crime and Corporate Transparency Act 2023. In particular, those new provisions allow organisations to share information (including personal data) for the purposes of investigating, detecting, and preventing economic crime without the risk of incurring civil liability for breach of confidence.

The guidance is designed to provide regulated firms with information on how to benefit from protections under the new legislation when sharing information, handling conditions for sharing and receiving information and undertaking law enforcement reporting, UK General Data Protection Regulation (GDPR) compliance and maintaining effective customer complaint processes.

Read Companies House's new guidance on information-sharing within AML-regulated sectors

Recommendations published to move to T+1 settlement in the UK

The Accelerated Settlement Technical Group (ASTG) has published draft operational recommendations designed to facilitate a move to a T+1 settlement cycle in the United Kingdom.

The ASTG was set up to advise on the technical changes needed to transition to T+1 settlement.

Its report contains 43 "principal recommendations", which it describes as "preconditions" to the "successful implementation and efficient operation" of T+1 in the UK.

It also contains 14 "additional recommendations", which are not preconditions but aim to increase the overall efficiency of the UK capital markets.

Finally, the report sets out a separate "Recommendation Zero", which explains the ASTG's recommended scope of T+1 settlement. Within this recommendation, the ASTG moots the alternative possibilities of the UK moving to T+1 in advance of the EU and Switzerland or co-ordinating its transition with those jurisdictions.

The ASTG has asked for views on its draft recommendations. It has asked for comments by 31 October 2024.

Read the Accelerated Settlement Technical Group's draft recommendations for implementing T+1 settlement in the UK (opens PDF)

Draft regulations published to extend payment practice reporting on construction contracts

Draft regulations have been published to extend the UK's regime for reporting on payment practices in relation to construction contracts.

Under the current regime, large UK companies and limited liability partnerships (LLPs) must publish a half-yearly report setting out their practice for paying supplier invoices, as well as statistics for their actual performance in paying invoices over the preceding year.

Construction contracts are already covered by the regime if (as will usually be the case) they involve the supply of goods, services or intangible assets (other than financial services).

However, under the Reporting on Payment Practices and Performance (Amendment) (No. 2) Regulations 2024, organisations would be required to publish further information on any retention clauses in construction contracts.

If approved, the changes would apply to financial years beginning on or after 1 April 2025.

Access the draft regulations to amend the UK's payment practice reporting regime to require further information on construction contracts