Companies told to link bosses' pay to performance

The UK's 916 premium-listed companies are being asked to change the way they pay their chief executives. They have been told to link pay, including bonuses, to long-term performance – and even to take it back if businesses fail to be profitable.

The changes come in biennial guidelines issued by the Financial Reporting Council (FRC), known as the UK Corporate Governance Code. They are enforced on a 'comply or explain' policy, meaning firms must follow suit or outline what alternative measures they have taken to ensure the same results.

The BBC says the rules could mean executives' bonuses are deferred for longer before being paid, with companies waiting to see if the people at the top have had a long-term positive impact before remunerating them.

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They may also trigger a move towards firms paying non-cash bonuses, such as shares, to get around the rules. The changes signal a new emphasis at the FRC on linking remuneration to a firm's long-term health, rather than short-term profits.

In the new code, published today, the FRC says: "Boards of listed companies will need to ensure that executive remuneration is aligned to the long-term success of the company and demonstrate this more clearly to shareholders.

"Executive directors’ remuneration should be designed to promote the long-term success of the company. Performance-related elements should be transparent, stretching and rigorously applied."

The guidelines also call on companies to introduce ways of recovering or withholding pay under certain conditions, without giving details of what exactly firms might be expected to do, or under what circumstances they should act.