Overview
Since 2008 there has been a constant stream of publications (including King III, FSA, Basel, European Union) on the latest thoughts, trends and principles in remuneration governance. The intention of these guidelines is to improve the governance of remuneration, improve the risk reward relationship for businesses and to improve the disclosure of remuneration information for stakeholders.
The risks associated with bonus payment against results which may in future reverse due to cyclical business results, subsequent restatement of results, market corrections or malus has lead to significant changes in governance around the payment of large cash bonuses. The result of this has seen the introduction of many deferral arrangements and malus or claw back arrangement in order to ensure that large bonus awards are based on results which can be verified and sustained over a medium to long term.
A further push from shareholders, particularly in the UK, has seen the introduction of more stringent shareholding requirement for executives. This is to ensure that, during their tenure, their interest are largely aligned with shareholder though an enforced minimum shareholding whilst as an executive of the company.