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Long-term incentive plans are about to get longer – but long-term board appointments will have to get shorter. That’s the (extremely) short and sharp version of the new UK Corporate Governance Code, as published by the Financial Reporting Council this morning. And it seems to be aimed at removing two long-standing reasons for public mistrust of business: money for old rope and jobs for the boys.
Under the new Code, executives at UK-listed companies will be required to hold on to LTIPs, or bonuses paid as shares, for at least five years – rather than the shorter periods that still apply at a third of FTSE 100 companies. But, just as significantly, remuneration committees will be able to reject pay and bonus packages when a company’s performance has been artificially boosted by currency movements or other factors unconnected with the “skill and success of the executives”.
Stefan Stern, director of the High Pay Centre, which monitors executive bonuses, said the change was a “step in the right direction” – although he added: “We should not be under the illusion that five years represents the long term — 10 would be better.”
Board members and chairmen will not be able to stick arounds for ages, either. Non-executive directors will cease to be deemed independent after nine years service on a board, and the clock will not be turned back to zero if a serving non-exec becomes chairman. Therefore, a non-exec with six year’s tenure could serve only three as chair.
As before, the code will not be not mandatory, but most listed UK companies already choose to comply with it rather than having to explain why they don’t.
Other new proposals include encouraging boards to assess fairness in pay across a whole company’s workforce — including self-employed and outsourced staff – and to consider ethnic and social diversity when making appointments.
Today’s announcement follows growing criticism of the gulf between highly paid chief executives and their workers, with the chiefs of Britain’s largest 100 listed companies earning 160 times more on average than the typical worker. They also include changes suggested by the government’s own corporate governance review.
Short-term profits, and much shorter periods in the market, still appeal to many, though. That’s the short version of IG Group‘s latest trading update. And it seems to suggest that City boys are willing to speculate on anything from bitcoin to the age of old rope.
IG – which enables short-term traders to place bets on shares, currencies or even cryptocurrencies – said net trading revenue in the first half is expected to be around 9 per cent higher than in the same period a year ago.
This performance followed a record quarter in the three months to the end of August, when revenue was up 21 per cent year-on-year and the number of clients rose 9 per cent to 124,900.
At the same time, operating costs excluding pay are expected to be around 7 per cent lower in the period compared with a year ago – primarily reflecting a lower level of advertising and marketing spend.
However, regulation remains the primary risk in the sector – and IG Group could offer no more reassurances than at its last update in September. It said:
As previously noted, the nature and timing of potential regulatory changes in the UK and some other key markets for the Group remain uncertain. The Company continues to implement measures to differentiate itself further within the OTC leveraged derivatives industry and to protect the business from regulatory change. It remains difficult, however, to predict what impact regulatory change may have on the Group this financial year and beyond.
Shareholders in Provident Financial, however, are finding that fixing its governance is a long-term job. After a botched restructuring led to profit warnings and the departure of its chief executive this year, it has this morning announced that its sub-prime car and van finance unit, Moneybarn, is under investigation by the Financial Conduct Authority.
According to the company, the FCA is examining Moneybarn’s customer affordability assessments and treatment of customers in financial difficulties.
In fact, since Moneybarn was authorised in 2016, the FCA has been looking at certain of its processes, which led the company to make some improvements, including to the way it deals with future loan terminations.
However, Provident Financial will now “work collaboratively with the FCA to investigate the remaining concerns and resolve any outstanding related issues as soon as practicable”.
And, finally, the Opening Quote Ashes update.
Second Test, Adelaide: England need 294 to win with 8 wickets remaining.
Prevailing sentiment: Hope over experience.
Today’s Lombard column focuses on the fate of two UK tech companies that supply Apple.
Britain’s technology industry is booming, judging by the Silicon Valley groups hiring in London. But Britain’s technology innovators look increasingly doomed, judging by one US tech giant’s record of firing them in south-east commuter towns.
On Monday, as Facebook announced a doubling of “high tech” employees at its West End hub, to 1,300, Apple was granting Reading-based chip supplier Dialog “special dispensation” for a very different announcement: confirmation of reports that Apple may stop using power management circuits made by the 2,000-strong group from 2019. Dialog’s announcement came exactly eight months after Apple said it had no more use for graphics chips designed by Kings Langley-based Imagination Technologies. More worryingly, it came just one month after what was left of Imagination — a tech pioneer once valued at nearly £2bn — was sold to a private equity group for £550m.
Read the rest of today’s Lombard column here.
FT Opening Quote, with commentary by Matthew Vincent, is your early Square Mile briefing. You can sign up for the full newsletter here.