Equiniti ezine March 2013

EZINE > MARCH 2013 INSIDE THIS ISSUE: EXECUTIVE PAY Executive Remuneration – the saga continues STAMP DUTY 0.5% stamp duty is scrapped on the trading of shares on growth markets LEADING THE WAY We scoop Product of the Year for our Employer ISA EMPLOYEE SHARE PLANS Getting ready for change following the budget COEFFICIENT SEMINARS Discussing how your board could deliver more GLOBAL SHARE ALLIANCE NETWORKING EVENT Guests from across the world met to discuss the latest trends and market conditions

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EXECUTIVE PAY

Peter Swabey outlines Equiniti’s response to the government’s draft regulations on executive pay

EXECUTIVE REMUNERATION – THE SAGA CONTINUES Equiniti has submitted its response to the second version of the Department for Business, Innovation and Skills’ draft Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013. As we outlined in our Equiniti David Venus E-shot last week, the regulations were published on 11 March, inviting comments by 25 March. Here, Peter Swabey outlines our response to this consultation.

Overall, we regard these draft regulations as a significant improvement on some of the earlier drafts. However, in our view there remains far too much prescription about the detailed contents of the policy. We believe that this should be about principles rather than matters of detail, allowing shareholders to leave matters of detail to the directors that they have elected to manage the company on their behalf. Whilst we understand that there are political imperatives

at work here, it seems odd to emphasize on the one hand the need for increasing the powers of shareholders and at the same time to emasculate those same shareholders by limiting their freedom of action.

Probably the most important single change, especially for companies with a 30 September year-end, was the implementation date. The regulations are still due to come into force on 1 October 2013, but the transitional provision contained in Article 4(1) applies the new rules “to the directors’ remuneration report of a quoted company required to be laid before the … accounts meeting to be held in the first financial year of the company which begins on or after 1 October 2013.”

This is fairly opaque wording but, as the accompanying explanatory notes clarify, means that, for a 30 September year-end company, this will be the meeting held in (probably)

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We believe that this should be about principles rather than matters of detail, allowing shareholders to leave matters of detail to the directors that they have elected to manage the company on their behalf.

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EXECUTIVE PAY

Year-end

First AGM at which company must report in the new format and put the remuneration policy to a binding shareholder resolution

Date from which all remuneration and loss of office payments must be consistent with the approved policy or approved by a separate shareholder resolution

30 September

Early 2014

1 October 2014

31 December

Spring 2014

1 January 2015

31 March

Summer 2014

1 April 2015

30 June

Autumn 2014

1 July 2015

December 2013 / January 2014, which is a year earlier than they will have expected.

Implementation dates for other companies are shown in the table above from the BIS ‘frequently asked questions’ document.

Many of the changes that have been made are beneficial but some requirements remain which may not achieve the desired results.

For example, there is greater clarity about the requirements for the implementation part of the report, but one of these relates to the reporting of payments made to past directors.

In principle, this is right and proper, for example where material consultancy or pension payments are made, but as drafted there is a risk of information being lost amongst data.

For many companies, there will be an ongoing obligation to make payments in respect of healthcare plans for former executives, and a good number of former executives will retain shareholdings in respect of which they will receive dividend payments. It surely cannot be the intention that the report will be complicated by separate lines for each former director for the previous twenty years, which would seem to be the effect of the proposal here.

Similarly, the ‘policy’ report appears to be more detailed than had been envisaged.

Rather than encompassing an overarching broad policy which would be valid for the three year period, the requirements include some fairly detailed prescription, and it is possible

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that some companies may feel it necessary to refresh the policy report every year rather than every three years. For example, there is a requirement to state in the policy targets both for the coming year and for future years.

Leaving aside the issue of how realistic this is, given that companies will typically wish to change measures from year to year in order to reflect changed business priorities, such a clear statement, in detail, of performance targets is likely to be commercially sensitive and will come very close to constituting market guidance. Although there is a safe harbour where the directors believe that disclosure would be “seriously prejudicial to the interests of the company”, it seems to us that setting

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EXECUTIVE PAY out performance targets in detail for the coming year will inevitably be prejudicial to the interests of the company (although whether it meets the standard of “seriously prejudicial” is a moot point as this seems a very high test).

There is a further challenge for companies in that the regulations require companies to state “the maximum level of salary which may be awarded [on recruitment] expressed as a percentage of the salary of the highest paid director…”. This again is too much prescription and will be likely to have a ratcheting effect on pay as any potential candidate will automatically know their ‘target’ salary.

Finally, there is a requirement that where there is a ‘substantial’ vote against either the vote on the directors’ remuneration policy or the directors’ remuneration report, the company must report “where known to the company, the reasons for that vote and any actions taken by the directors in response to that.” It is our experience that (rightly) investors do not always have the same view on issues put to them at general meeting, and that two investors voting against a resolution might do so for different reasons. It can therefore be difficult, given the complexity of directors’ remuneration arrangements, for the directors to

take ‘actions’ as suggested. Without a definition of ‘substantial’ we believe that this requirement is, in any case, largely meaningless. Even where there has been a vote of 49% against a remuneration resolution, the fact remains that the majority of shareholders voting are satisfied with the proposal.

That said, our own research on the 2012 AGM season, which we shared with clients at our AGM Discussion Forum last October, demonstrated that this may not, in fact, be an issue. Only two FTSE100 companies lost their Directors’ Remuneration Report resolution in 2012 and, even if the requirement had been for this to be a special resolution (with a 75% vote in favour to pass), only four more companies would have lost. It would seem difficult to argue that a vote of less than 25% could meet a definition of ‘substantial’ so this may not be the problem that it might at first appear.

The new regulations will not be published in final form until the early summer and, no doubt, there will be further discussions in the light of feedback to this consultation. However, it is important to understand that there is a background of intense political pressure to “do something” about “excessive remuneration” and, in particular, “rewards for failure”.

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IF YOU WOULD LIKE MORE INFORMATION Please contact your relationship manager

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STAMP DUTY

Tim Ward, Chief Executive, Quoted Companies Alliance

SCRAPPING STAMP DUTY FOR AIM AND ISDX WILL FUEL GROWTH We were excited to see one of our key campaigns featuring in the budget. The Chancellor announced on Wednesday 20 March that the 0.5 per cent stamp duty tax will be removed on the trading of shares on growth markets, such as AIM and the ICAP Securities and Derivatives Exchange (ISDX), from April 2014.

Together with the London Stock Exchange and other industry bodies, we have been pushing for the removal of stamp duty on trades in AIM and ISDX shares. This measure will help to increase liquidity and investment in small and mid-sized quoted companies – vital engines of growth for the UK economy. Our quarterly QCA/BDO Small and Mid-Cap Sentiment Index in November 2012 showed that removing stamp duty on trading in small and mid-sized quoted company shares was one of the five most popular fiscal measures that would have the greatest positive impact on companies were it announced in the 2013 budget.

Removing stamp duty on AIM and ISDX shares should help to encourage more investment from both institutions and retail investors, making it cheaper for small and mid-sized quoted companies to raise finance.

It is important to note that this change is not due to take effect until the tax year 2014/2015. Between then and now, there will be a consultation by HM Treasury. Our understanding is that the consultation will not be about whether to remove stamp duty on AIM and ISDX shares, but instead how to implement it. For example, there may need to be some changes to the CREST settlement system

IF YOU WOULD LIKE MORE INFORMATION For more information about the budget and this announcement, visit HM Treasury’s website.

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AWARDS

Our Employer ISA beat other industry-leading solutions to scoop Product of the Year

AHEAD OF THE COMPETITION “We are thrilled that our product has been selected as Product of the Year,” says Mark Taylor, Director of Equiniti Investment Services, following the Pay and Benefits Awards, where the team scooped a prestigious award for its Employer ISA. The Employer ISA offering was launched in March 2012. The suite of three employersponsored product options enables employers to offer valuable additions to their employee benefits. Benefits of the product include: ■■ Employees can invest tax free up to their annual ISA allowance each tax year (£11,280 for the 2012/2013 tax year) in one ISA ■■ Tailored ISA communication materials and easy ISA access for employees by telephone, internet and intranet ■■ Single point of contact for all share-related enquiries ■■ Regular investment, allowing employees to buy shares from £1.75 commission per trade ■■ Wide investment choices

The Investment Services team pick up the Pay & Benefits Product of the Year award In this category, judges were looking for evidence that the winning product displayed creativity and skill in both identifying and addressing a need for payroll and benefits professionals.

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“We wanted to be able to provide employers with increased financial planning opportunities, through which they could encourage their employees to save and make the most of their savings,” says Mark. “With our Employee ISA offering, we can provide a flexible communications plan that can be tailored according to the client’s needs. At the same time, access to the share portal and our award winning Customer Services team ensures that investors are provided with full support and delivered a smooth and simple account set up,” he adds.

In winning this award Equiniti fought off stiff competition from other industry leaders, including Ceridian, Helm Godfrey, Lorica Employee Benefits and Software Europe.

IF YOU WOULD LIKE MORE INFORMATION Please contact your relationship manager

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EMPLOYEE SHARE PLANS

Keeping you up to date with changes - Phil Ainsley, Director, Employee Benefit Solutions

EMPLOYEE SHARE PLANS – BUDGET UPDATE Following the March budget, we have pulled together information impacting on employee share plans.

The Government has confirmed that it will be moving forward with employee share plans changes, although there are a few alterations to the detail.

US Agreement to Improve International Tax Compliance and to implement FATCA. The Isle of Man, Guernsey and Jersey have agreed to enter into similar automatic exchange agreements with the UK.

HMRC Real Time Information system PAYE late payment and filing penalties Legislation will be introduced in the Finance Bill 2013 to encourage compliance with the real time information payment and information obligations. The legislation includes new late filing penalties and changes to the current late payment penalties to ensure they can be charged in-year, with effect from 6 April 2014.

FATCA and International agreements to improve tax compliance The Government will include legislation in the Finance Bill 2013 to implement the UK-

Chancellor George Osborne before presenting his annual Budget

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New employee shareholder status update The Government is legislating to introduce a new employee shareholder status that will give staff a stake in their firms’ future. Employee shareholders will have different employee rights and shares worth a minimum of £2,000.

As already announced, the Government will exempt gains on up to £50,000 of shares acquired by employee shareholders from capital gains tax. The Government has also decided that the first £2,000 of share value that anyone receives under the new status will be free from income tax and NICs. This will be of particular benefit to anyone receiving the minimum amount of shares, as it will ensure that no tax is due when they receive

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EMPLOYEE SHARE PLANS their shares. This should take effect from 1 September 2013, when the new status comes into force. On the same day as the budget, the House of Lords voted not to include employee shareholder status in the Growth & Infrastructure Bill. The proposal will now go back to the Commons where the Government will decide whether to continue with its introduction.

Employee ownership The Government is providing £50 million annually from 2014-15 to be used to respond to recommendations from the Nuttall Review and other relevant organisations who aim to encourage employee ownership. It will also be used to fund the introduction of capital gains tax relief on the sale of a controlling interest in a business into an employee ownership structure. Consultation on this measure will take into account the progress of work by the Department for Business, Innovation and Skills (BIS) and the Implementation Group to develop an ‘off the shelf’ employee owned company model, with the intention that the new capital gains tax relief will be introduced in Finance Bill 2014.

OTS proposals for simplification of HMRC approved employee share schemes We have been following the progress of the Office of Tax Simplification review into approved share schemes. The budget has confirmed that legislation will be introduced in the Finance Bill 2013 to implement a number of the recommendations. However, following consultation there have been some changes and the legislation has been revised to: ■■ Protect the position of current SAYE participants who reach a specified age ■■ Widen the range of circumstances in which tax free exercise of SAYE and CSOP options or tax free payments for SIP shares, will be available on the cash takeover of a business ■■ Ensure that SIP partnership shares may not be subject to forfeiture provisions ■■ Allow businesses flexibility to limit the amount of cash dividends that can be reinvested in SIP dividend shares We will be looking closely at the detail of these amendments. Most of these changes and those detailed back in December will have effect from the date of Royal Assent to Finance Bill 2013, although changes which relate to the reinvestment of cash dividends paid on SIP shares come into effect on 6 April 2013.

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On the same day as the budget, the House of Lords voted not to include employee shareholder status in the Growth & Infrastructure Bill.

The proposal will now go back to the Commons where the Government will decide whether to continue with its introduction.

HMRC approval of approved plans The Government announced in December that it would replace the current system of HMRC approval of tax advantaged employee share schemes with self certification of schemes by businesses. The Government will publish details of the proposed self certification process shortly. Legislation will be in Finance Bill 2014.

OTS proposals for unapproved share plans The Government will consult on a number of recommendations of the OTS review of

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EMPLOYEE SHARE PLANS unapproved employee share schemes.

Legislation will be provided in future finance bills.

Capital Gains Tax The annual exempt amount for individuals will rise from £10,600 (tax year 2012-2013) to £10,900 (tax year 2013-2014).

Individual Savings Account The ISA limit will rise from £11,280 (tax year 2012-2013) to £11,520, up to £5,760 of which can be saved in cash (tax year 2013-2014).

Stamp Tax on Shares On 13 March 2013 the Government launched a consultation on extending ISA eligibility to include a wider range of small company shares. To further support these companies, the Government will abolish Stamp Tax on Shares for companies listed on growth markets, including the Alternative Investment Market and the ISDX Growth Market from April 2014. This will directly benefit hundreds of smaller quoted UK firms, lowering their cost of capital, helping to promote jobs and growth across the UK.

Corporation tax deductions for employee share acquisitions Legislation will be introduced in the Finance Bill 2013 to clarify the rules that govern the corporation tax deductions available where companies grant share options or award shares to their employees. This measure removes any uncertainty as to what deductions companies are entitled to claim. The rules have been applied by HMRC since 2003, so there will be no impact on businesses already acting in accordance with HMRC guidance.

IF YOU WOULD LIKE MORE INFORMATION To find out more about the budget announcements please contact your relationship manager

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COEFFICIENT SEMINARS

Coefficient seminars prove successful in showing the importance of board evaluation and board effectiveness as part of good corporate governance.

COEFFICIENT SEMINARS – COULD YOUR BOARD DO BETTER? An effective board develops and promotes its collective vision of a company’s purpose, culture, values and behaviours.

Coefficient, the Board Evaluation arm of Equiniti David Venus, recently held seminars in London and Edinburgh to address challenges that are currently facing boards. The seminars also took a closer look at other areas of topical interest, which included gender diversity, boardroom behaviours and board effectiveness.

The Financial Reporting Council’s (FRC) Guidance on Board Effectiveness report gave attendees real food for thought: ‘An effective board should not necessarily be a comfortable place’. This generated great discussion at both seminars, with widespread agreement that many challenges lie in leading a board to success. A lively debate ensued around creating the right board dynamic, and the importance of

having a chairman who is fully engaged in the business and understands what is happening on the ground.

It also gave people the opportunity to share the experiences of their boards.

As well as board effectiveness, the issue of board diversity was also on the agenda. In 2010, Lord Davies led a government review, which resulted in a target being set that 25% of the members of FTSE100 boards should be female by 2015. Currently, this figure sits at 17.3%. Discussions centred around whether or not this figure is likely to reach the anticipated 25%. For FTSE250 companies, the outlook is a little different – only 10.9% of board members are currently women.

Peter Swabey, Company Secretary and Industry Leadership Director at Equiniti, spoke about narrative reporting and executive remuneration at the seminar. He discussed

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BOARDROOM BREAKDOWN How close FTSE company boards are to making the 25% female representation

17.

3% FTSE 100

10.9 %

FTSE 250

the changes afoot in business reviews and the implications of this – particularly the change of implementation date to affect companies with 30 September year ends earlier than they might have expected.

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COEFFICIENT SEMINARS Executive remuneration has been in the spotlight a great deal recently, and it was no different at these events. Peter covered the proposed legislation and reporting requirement.

Doug Armour, Managing Director at Equiniti David Venus, gave an update on the Kay Review and presented on changes to the Stewardship Code, which came into effect in October 2012.

Marla Balicao, Director at Equiniti David Venus, was very pleased with client feedback on the events: “We were overwhelmed by the number of people that attended our seminars. Through covering the most current and important topics affecting our business and economy, we gave those in attendance the opportunity to discuss how current changes in legislation will impact on us and what we can do to prepare for the future. As a result, we have had very positive feedback and intend to hold additional seminars later this year.”

PETER SWABEY Company Secretary and Industry Leadership Director at Equiniti

MARLA BALICAO Director at Equiniti David Venus

DOUG ARMOUR Managing Director at Equiniti David Venus

IF YOU WOULD LIKE MORE INFORMATION about attending a future event or would like to hear more about Coefficient’s Board Evaluation services, contact marla.balicao@davidvenus.com.

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NETWORKING EVENT

The Hong Kong Bankers Club played host to a successful Global Share Alliance networking event

GLOBAL NETWORK

The Bank of East Asia’s Chairman and Chief Executive Dr. David K P Li was guest speaker for a Global Share Alliance (GSA) networking event drawing 100 guests from around the world.

The event, which took place on 25 February, was hosted by GSA partner Tricor and provided a great opportunity to discuss the most current cross border trends, deals and regulatory changes and general market conditions. It was attended by Equiniti’s Paul Matthews, Director of Corporate Markets

and John Parker, Chairman of the GSA, who thanked the guests for attending and highlighted the compelling reasons why the GSA was formed and how well positioned the group was to meet the growing requirements of global companies.

The GSA, formed in 2011, is an alliance of recognised global leaders to provide enhanced global registry and financial services. Partners are Equiniti, Link, Wells Fargo, American Stock Transfer (AST), Canadian Stock Transfer (CST) and Tricor. The alliance offers cross border

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registry, corporate actions, proxy and other solutions to public and private issuers, their investors and employees.

The cocktail reception offered a chance for clients and prospects to meet and network with the GSA partners and friends of our alliance, including members from Canada, the UK, the US, Australia and Hong Kong.

IF YOU WOULD LIKE MORE INFORMATION Visit our website at www.GlobalShareAlliance.com