QCA updates director remuneration policy in corporate governance code

The QCA CGC is specifically tailored for smaller and mid-sized companies and is widely used by Alternative Investment Market (AIM) companies. Broadly, the structure of the previous version of the CGC remains intact while adapting to new market expectations, particularly in areas such as environmental, social, and governance (ESG) practices, as well as internal controls. From 1 April 2024, companies will be expected to report under the revised CGC.

Under the AIM Rules, AIM-listed companies are expected to identify a recognised corporate governance code that the board of directors of the AIM company has decided to apply, such as the QCA's CGC. Although AIM companies are not required to adhere to all of the provisions of the CGC, or any other corporate governance code that they apply, the AIM Rules require companies that do not follow any of the core requirements of their chosen code to explain why they have not done so.

The updated CGC has established a new core 'principle' for directors' remuneration which mandates companies which follow the CGC to establish a remuneration policy that aligns with long-term value creation, the company's purpose, strategy, culture, and its stage of development.

Alongside the new core remuneration principle, the new CGC specifically states that companies must submit their directors' remuneration report to an advisory shareholder vote on an annual basis. Their directors' remuneration policy must also be put to "at least" an advisory vote by shareholders, though larger companies are encouraged to allow a binding vote on remuneration policy as a best practice. In addition, the revised CGC specifies that any new or significant amendments to existing share schemes or long-term incentive plans must undergo a shareholder vote.

The CGC operates in conjunction with the QCA’s Remuneration Committee guide, providing additional guidance on remuneration structures, with a particular emphasis on aspects related to director compensation, including considerations such as dilution limits.  

Share plans and incentives expert James Sullivan-Tailyour of Pinsent Masons said: “Whilst the specific requirements of the new core remuneration principle were previously contained in the QCA’s Remuneration Committee guide, the movement of these requirements into the main body of the code under a new core principle represents a significant change in emphasis by the QCA.”

He added: ”These changes to the CGC significantly align the expectations on companies that follow the CGC with the expectations and requirements that apply to main market-listed companies. It remains to be seen whether this change in emphasis by the QCA will prompt AIM companies to align their practices with main market expectations, or whether AIM companies will choose to retain greater flexibility and explain why they do not consider it appropriate to follow the expectations of the CGC in full.”