Remuneration Governance for Aim Listed Companies
14 March 2018
A move towards greater transparency and disclosure
Since the Alternative Investment Market (AIM) launched in 1995, one of the attractions has been the “lighter touch” regulation afforded to its constituents. However, as the AIM market has matured, and the AIM 50 and 100 has consistently in recent times outperformed main market indices, the LSE has undertaken a review of the AIM rules in a number of areas, including corporate governance.
Announced on 8 March, a change to AIM Rule 26 will require AIM listed companies to disclose, on an annual basis, details regarding which recognised corporate governance code they have chosen to apply, along with how they have complied with that code and reasons from any departures from it. Up until now disclosure has been voluntary, though a number of the larger AIM companies have adopted the Quoted Companies Alliance (QCA) Code of Corporate Governance. The changes will come into effect from 28 September 2018, although all new applicants from 30 March 2018 will be required to state which corporate governance code they intend to follow but otherwise will have until 28 September 2018 to comply.
Perhaps with the anticipated LSE changes in mind, the numbers of companies following the code has increased rapidly:
Tim Ward, CEO of the QCA said that “50% of AIM companies are now using the QCA code as their reference point, against only 26% last year….this demonstrates how corporate governance is being pushed up board agendas”. In light of the change to Rule 26, the QCA will be releasing a new and fully updated QCA corporate governance code in April.
While the code is concerned with wider matters of governance (as well as remuneration, which has its own separate ancillary guide), there has not yet been the same level of increase in remuneration disclosures. However, in the current climate of transparency in pay matters (both executive compensation, and gender pay disclosures), this is likely to change, and we are seeing some evidence to that effect.
So far in 2018, we have received a number of requests from AIM listed companies, either seeking to enhance existing remuneration disclosures, or to draft relevant disclosures for the first time. Some are seeking to formalise a policy that has perhaps loosely existed but hasn’t been brought together into a consistently applied framework. AIM companies are not required to seek shareholder approval of a policy (unlike in the main market, where a listed company has to put its policy to a shareholder vote every three years), or its remuneration report. Some companies do so on a voluntary basis however, sometimes with unexpected voting results, and the importance of regular dialogue with shareholders shouldn’t be underestimated, particularly for areas that could prove contentious.
With the current pressures on disclosure and transparency around executive pay in the main market (and indeed other sectors such as Higher Education), intensifying focus on gender and equal pay, and now this latest push for AIM companies to formally adopt a corporate governance code, it is likely there will be an expectation for enhanced levels of disclosure amongst AIM constituents.
It is worth considering why increased levels of disclosure are desirable at all, when they are seen by many to be simply evidence of a tick-box culture. As Tim Ward also observed “it is important to recognise that shareholders need to be able to see what you are doing. It is not enough to do it, it’s the way that you disclose actions that matters….box-ticking is a good thing if you do it at the right time”
PwC supports many AIM listed companies with developing a remuneration policy and the disclosures required to give meaningful information to stakeholders. We help remuneration committees formulate robust terms of reference, benchmark remuneration against appropriate comparators and design and implement incentive arrangements that align company, shareholder and executive interests in delivering the company’s strategy.