TAX NEWS - June 2010

UK Tax: 2010 UK Corporate Governance Code published containing recommendations on performance measures for pay

The Financial Reporting Council has published its June 2010 UK Corporate Governance Code. Particularly important are changes to the recommendations on performance measurement for pay. Code compliance obligations will apply to any companies which have a premium listing of equity shares in London and apply to accounting periods commencing on or after 29 June 2010.

The Code will have a significant impact on the design of executive remuneration and the way it is disclosed in the annual report. Performance related elements of executive directors' remuneration continue to be permitted but should be 'stretching' and designed to promote the company's 'long term success'. In addition, total shareholder return as a performance measure has been removed which provides companies with an opportunity to design incentives which focus on performance, risk and a well-defined business model. The Code states that non executive directors should not receive any performance related remuneration, including share options.

Given the nature of the changes, companies will need to plan ahead in reviewing remuneration policies, executive contracts and service agreements, and incorporating new requirements into the business of the Annual General Meeting.