AIM - the changing face of remuneration governance

By Karen Willcox

The recent change to AIM Rule 26, requiring all AIM companies to adopt a recognised corporate governance code, has raised much debate amongst Non Executive Directors (NEDs) on what this means for remuneration.  Central to their thinking is how they set remuneration for AIM executives, in a fair, independent and transparent way, in a backdrop of ever growing scrutiny from shareholders, employees and the media.

To help boards understand the new requirements and what best practice might look like, we are pleased to present our new report ‘The changing face of governance in AIM’, which includes latest remuneration market guidelines.

At our recent roundtable event for AIM executives and NEDs, we highlighted four specific areas of concern they need to address.

1. Dilution - a significant issue for shareholders, particularly given the Investment Association’s "10% in 10 years" does not apply to AIM companies
2. Independence - balancing the need for independent NEDs with the relatively small scale and size of many AIM companies
3. Excessive awards - with no requirement to vote on a share scheme, remuneration policy or remuneration report, shareholders may be concerned about the risk of excessive payouts whilst executive directors seek fair reward for delivering value
4. Governance and disclosure - given the relative freedom of the AIM market compared to the FTSE, what is the right level of disclosure and what is expected by stakeholders?

Our analysis of remuneration market guidelines for the AIM 100 shows that, whilst the top AIM companies may be comparable in size to some FTSE 250 counterparts, the median salary of an AIM 100 CEO is £315,000 (compared to £530,000 in the FTSE 350). In addition, whilst the short and long-term incentive opportunities are not dissimilar to those in the FTSE 250, participation in such plans is far lower in the AIM 100 (particularly for long-term incentive schemes). Our report explores further the reasons this may be the case.

Furthermore, whilst the UK Corporate Governance Code has shone a light on the pension practices for executives in FTSE companies, our analysis indicates that only around half of AIM 100 CEOs participate in a pension scheme (or receive a salary supplement), and of those who do, the median contribution rate is 10% of salary. This suggests that the disparity between executive and wider workforce contributions seen in many FTSE companies is not replicated so widely in AIM.

PwC supports many FTSE, AIM and private companies in meeting their corporate governance requirements, developing a fair and consistent remuneration policy and advising on disclosures required to give meaningful information to stakeholders.

For further information please contact Karen Willcox or your normal PwC contact.