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The Financial Reporting Council (FRC) has updated its guidance which accompanies the UK Corporate Governance Code (Guidance) to clarify that the payment of non-executive directors (NEDs) in shares may be appropriate.
The update to the Guidance follows the government's announcement last month that it had asked the FRC to amend the Guidance (see our blog here for further details).
The Guidance had previously stated that share options or other performance-related components should not be included in NED remuneration. The updated Guidance recognises that many companies support NEDs building a personal shareholding in the company, acknowledging that this helps to create alignment between independent NEDs and shareholders. Accordingly, the Guidance now clarifies that based on the particular circumstances of a company, a board may wish to explore alternative approaches to NED remuneration, whilst being mindful to maintain NED independence. In the Guidance the FRC says it continues to consider performance-related pay to be inappropriate but that offering share options, or similar arrangements to acquire shares, may be appropriate. The Guidance also encourages companies to set out their arrangements in the annual report.
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