COVID-19 updates - Page 4 - Tapestry - Global Legal Compliance Partners

COVID-19: UK IA letter on expectations & support

8 April 2020

The Investment Association (IA) has sent a letter addressed to FTSE 350 companies expressing support from investment managers for British businesses in the face of the COVID-19 pandemic, and setting out what the IA expects to see in certain key areas, including executive remuneration.

Remuneration

The IA restates its goal of delivering long-term value and security for investors, and despite the current crisis, wants companies to ensure they are thinking long-term too. For remuneration, this means the IA favours companies that reflect cancelled dividend payments and/or changes to workforce pay in their approach to executive pay - as set out in the IA Principles of Remuneration which require pay to be linked to performance and shareholder experience.

Other points

Engagement and communication - shareholders will support a focus on the most business-critical issues, so companies can focus on building a long-term sustainable future.
AGMs - again, shareholders will focus on key material issues affecting businesses, as well as encouraging flexibility to ensure AGMs can go ahead while respecting ‘Stay at Home’ measures.
Dividends - the IA recognises that there is no one size fits all approach here, and the most important thing is that companies act transparently and in the interests of their own sustainability - although where dividend payments are cancelled they should be resumed as soon as possible.
Financial reporting - as we recently reported on in a newsletter which can be found here, the IA welcomes the additional time the UK Financial Conduct Authority has given to companies to prepare their results and reports.
Additional capital - shareholders will look to support companies seeking additional capital where possible.

Tapestry comment
Many companies have already been looking at their own remuneration arrangements for their executives ahead of the IA’s guidance this week and other institutional investors’ letters to companies in the last few days. The arrangements we are seeing being considered include salary reductions, bonus waivers, arrangements which look to defer salary or settle in shares to conserve cash and align with shareholders, and changes to their share plans.

We will be holding a webinar on these alternative arrangements and will send out invitations next week.

It is helpful that the IA are supporting the alternative AGM arrangements being proposed. Many companies have their Remuneration Polices up for renewal this year and as well as other complications of AGMs not happening when they were due to happen, this facilitates the AGM business being done in a timely way.

If you would like to discuss the implications of this letter, or of COVID-19 on your incentives more generally, please do let us know.

Janet Cooper OBE

COVID-19: FS Regulators act on Dividends, Share Buybacks & Bonuses

2 April 2020

This week, the European Banking Authority (EBA) and the UK’s Prudential Regulation Authority (PRA) have issued statements relating to the suspension of dividends and share buybacks in credit institutions, and asking those firms to assess their variable remuneration policies. The statements are intended to ensure that credit institutions maintain a sound capital base during the COVID-19 crisis and follow a similar recommendation from the European Central Bank (ECB) last week.

Key points from the EBA statement:

The EBA urges all banks to refrain from dividend distributions or share buybacks which result in a capital distribution outside the banking section, in order to maintain its robust capitalisation. Banks should revert to their regulators if they consider themselves legally required to pay dividends or make share buybacks.
Competent authorities should ask banks to review their remuneration policies, practices and awards to ensure they are consistent with and promote sound and effective risk management, reflecting the current economic situation.
Remuneration and, in particular, variable remuneration, should be set at a conservative level.
To achieve an appropriate alignment with risks stemming from COVID-19, a larger part of the variable remuneration could be deferred for a longer period and a larger proportion could be paid out in equity instruments.
The statement follows an earlier EBA statement in which they asked that banks should follow prudent dividend and other distribution policies, including with regard to variable remuneration, to ensure that banks build up adequate capital and liquidity buffers.
The EBA also published a separate statement asking regulators to be flexible when assessing compliance with Pillar 3 report publication deadlines, noting that if firms reasonably anticipate a delay, they should inform the regulator and market participants of the delay, the reason for the delay and, where possible, the estimated publication date.

Key points from the PRA statement:

The PRA has written to the UK’s seven largest systemically important deposit-takers requesting that they suspend dividends and buybacks of ordinary shares until the end of 2020, and that they cancel payments of any outstanding 2019 dividends.
The PRA expects banks not to pay any cash bonuses to senior staff, including all material risk takers.
The PRA is confident that bank boards are already considering and will take any appropriate further actions with regard to the accrual, payment and vesting of variable remuneration over coming months.

Tapestry comment
These statements form part of wider coordinated regulatory action to ensure that banks maintain a sound capital base to enable them to continue key lending functions during this time of global crisis. The statements also show that regulators will focus on the variable remuneration policies and practices of credit institutions to ensure they remain appropriate in the current climate.

Firms should review the key aspects of their remuneration policies and practices to ensure they are appropriate in light of the ongoing crisis and should, in addition to ensuring that the structure and quantum are justifiable to the regulator, ensure that all relevant remuneration rules and guidelines continue to be complied with. If a regulator considers that excessive or otherwise inappropriate variable remuneration payments have been made, they may also take a closer look to ensure that the relevant rules and guidelines have been complied with.

The PRA’s expectation that banks do not pay any cash bonuses to senior staff, including all material risk takers, may be of particular concern to some of the impacted firms. The impacted firms will need to consider how this will be dealt with, particularly where existing contractual commitments have been made to pay those cash bonuses, and will need to consider whether an alternative instrument will be suitable, such as a larger share award.

The prohibition on dividends and buybacks may trigger other remuneration considerations. For example, although material risk takers should not receive dividend equivalents during vesting, employees who are not material risk takers may receive remuneration awards which normally attract dividend equivalents, meaning those employees will lose out on the dividends for this year. Also, if share buybacks are used to acquire treasury shares to hedge a share plan, the prohibition on share buybacks may impact the supply of treasury shares for firms that rely on buybacks for this purpose.

Firms that are not currently caught by the statements published, particularly firms in other jurisdictions, should prepare for comparable statements to be published by their appropriate regulators and consider how their firm will react. In the meantime, firms will be taking note of these developments and will consider the optics of continuing to pay out dividends and large bonuses in these uncertain times when many companies are struggling financially.

All firms should consider if there are any other changes required to remuneration policies and practices as a consequence of the COVID-19 crisis. We published an alert recently setting out a few questions that firms should consider.

If you would like to discuss this alert, or anything else, please do let us know.

Matthew Hunter

COVID-19 updates / Financial Services updates / Newsletter - 04/02/2020

COVID-19: UK: FCA extends the deadline for annual accounts

26 March 2020

The UK Financial Conduct Authority has today published a statement providing temporary relief for listed companies facing the challenges of corporate reporting during the ongoing COVID-19 crisis. The FCA has also published a related Q&A webpage. Those companies who do defer may also need to consider the impact on the timing of their upcoming grants and vesting of share awards.

Key points:

The requirement for companies to publish audited financial statements within four months from their financial year-end has temporarily been extended to six months. Companies may continue to publish within four months, if they wish, but the FCA is urging all companies who feel it appropriate to take the additional time offered.
The COVID-19 crisis will lead to companies re-thinking their financial calendars to ensure that the information disclosed is accurate and carefully prepared, and the FCA encourages this.
The temporary relief does not currently extend to half yearly financial reports (interims) which should be published within 3 months of the half year-end.
The temporary relief is only relevant to companies that are subject to DTR 4.1 and does not include companies with securities admitted only to markets that are not regulated under MiFID, such as AIM.
The EU Market Abuse Regulation remains in force and companies are still required to fulfil their obligations under the Regulation, including the timely disclosure of inside information and respecting the prohibition on insider dealing. The FCA acknowledges that companies will need to carefully assess what constitutes ‘inside information’ at this time - what is material to the business’s prospects may now have shifted.
On 21 March, the FCA requested that all listed companies delay the publication of their preliminary financial statements for at least two weeks, in order to absorb recent events and be able to take them into account when preparing their statements. Whilst voluntary, the FCA has confirmed that the moratorium has been ‘well observed’ and that it will now end on 5 April 2020.
The extension of the publication deadline is intended to be temporary while the UK faces the extreme disruption of the COVID-19 crisis and its aftermath. The FCA will keep this under review and, when the disruption abates, will announce how it will end.

Tapestry comment
For many companies, the ability to delay the publication of the annual results will be a welcome relief at this difficult time. There are, however, a few key share plan related issues that companies should consider, and that will need to be managed and communicated to employees and administrators. These are:

The delayed deadline for audited annual results and the ongoing moratorium for preliminary results may impact when grants can be made. Normally, share plan rules operated by UK listed companies will permit grants to be made within 42 days following the announcement of preliminary or audited results (as expected under the Investment Association’s Principles of Remuneration). Awards that are typically granted during this period would need to be delayed in line with the delay of the relevant preliminary or annual results, impacting the company’s normal grant (and, as a consequence in future years, vesting) cycles.
Under the EU Market Abuse Regulation, ‘closed periods’ of 30 days prior to the publication of preliminary or audited results, during which certain share plan related actions (such as the exercise of an award, or the sale of shares) by persons discharging managerial responsibilities cannot take place. These closed periods will move as a consequence of any delay of the preliminary or audited results, which may result in adverse consequences if they now fall within a ‘normal’ vesting cycle.
Companies should also check their own Share Dealing Code for the terms of any wider closed periods that might apply. These Codes often implement closed periods from the end of a financial period until the publication of the preliminary / annual results. Delaying these results could see considerably extended closed periods during times of ‘normal’ vesting cycles, which again may have adverse consequences as mentioned above.

If you would like to discuss the implications of this statement, or of COVID-19 on your incentives more generally, please do let us know.

Janet Cooper OBE, Hannah Needle FGE and Matthew Hunter

COVID-19 updates / Financial Services updates / Global updates / Newsletter - 03/26/2020

COVID-19: UK Gender Pay Gap Report Filing suspended

25 March 2020

The Gender Pay Gap reporting in the UK has been suspended by the Government. The announcement was made on 24 March to suspend gender pay gap reporting requirements for this year due to the Coronavirus outbreak.

Key Points:

Gender pay gap reporting obligations, which look at the difference between the average earnings of men and women, expressed relative to men’s earnings, were introduced in 2017 and apply to businesses and organisations with over 250 employees. However, in light of the COVID-19 pandemic, the government has decided that companies will not be expected to report their gender pay gap data this year.
Reporting for this year would have covered data from the 2018-19 “snapshot date”, which is 5 April every year. The deadline for reporting this data would have been 4 April 2020, and so any employers that have not reported already will have their reporting obligation suspended. Over 3000 employers have already completed their gender pay gap reporting - about a quarter. The government has noted that any companies that are still in a position to report their gender pay gap data can continue to do so and will be provided with support by the Government Equalities Office.
Under normal circumstances, the Equality and Human Rights Commission would have the power to investigate any employers that fail to satisfy their gender pay gap reporting obligations, and these employers could face an unlimited fine after court action.

Tapestry Comment
Given the difficulties that many companies are facing in the wake of the COVID-19 outbreak, this decision by the government will be helpful to those companies that have not yet completed their gender pay gap reporting for this year or where they cannot now get into their office to do the filing.

Many companies will have already prepared their Gender Pay Gap Report though and will have been waiting until the end of the month to submit. It is likely that many of those organisations, especially where they have good data and progress in their gender equality initiatives, will still want to submit or at least publish on their own website. It has been helpful that the Government Equality Office recognises that as offices have been forced to close some will not have access to their reports to be able to submit. The UK’s Gender Pay Gap reporting requirements have been important in bringing gender equality to the forefront of boardroom discussions and, whether or not a company chooses to submit at a later date, if companies want to make progress on gender equality and show to women in their organisations that it is important, they may want to publish their data when they can.

It is worth noting that, at present, the government decision does not look to have any impact on future gender pay gap reporting obligations and deadlines, meaning that companies will still be expected to submit their gender pay gap reporting data for 2019-20 by April 2021.

If you would like to discuss the impact of COVID-19 on your share plans, please do let us know.

Janet Cooper OBE

COVID-19 updates / Global updates / Newsletter - 03/25/2020

COVID-19: Incentive plans in uncertain times

13 March 2020

Companies are facing imminent grant and vesting events under their incentive plans in times of substantial stock market turmoil, business disruption and general uncertainty. What are the questions you might be being asked by your internal stakeholders and investors, and what decisions might need to be made?

How do we meaningfully value outstanding awards?
Can we delay grants and vestings (and should we)?
Are these the “exceptional circumstances” permitted to grant outside of our usual permitted window?
What grant price should we use to calculate the number of shares under award - is it fair or unfair to use the current share price?
How many shares will we need when granting new awards?
How will this impact our dilution limits?
Should we re-think our hedging strategy?
Are our performance conditions still appropriate, and can they be changed?
Should we exercise discretion when vesting awards - is now the time to override those formulaic outcomes?
What do we do about options that are now underwater?
What does our remuneration policy permit?
For our all-employee plans - do we have the answers if employees want to withdraw funds or stop contributing? Is now actually a good time to launch, re-launch or switch-up our offering?
Are there any clauses in our plan rules that help us step outside our usual practice?
How do we communicate the effects to our participants?

Tapestry comment
The impact of the Coronavirus (COVID-19) is developing globally with alarming speed. More than ever, we are all having to adapt quickly to keep to “business as usual”. Companies are taking steps to protect their businesses and employees, and to mitigate the impact of the virus. These steps will involve accommodating pay and incentives in our shared new normal.

You may wish to reconsider standard or existing practice for your incentives in light of extreme stock market volatility and general business uncertainty. Delaying grants, revisiting whether existing incentives are fit for purpose and mitigating share and cash costs are some of the factors you will have to consider when examining your reward and incentive arrangements. Your individual company situation will, of course, be influenced by the markets and sectors you are in, and the calls from your particular investors.

If you would like to discuss any of the above to see what’s possible under your incentive plan rules and associated policies please get in touch, and look out for our upcoming webinar invite.

On a wider note, we want to let you know that Tapestry has measures in place to ensure business continuity for our clients and the safety of our team. We are confident that we can continue to deliver high quality advice during these circumstances, as we are a flexible business that can adapt well to changes as they evolve. Tapestry will continue to remain available to partner with you in navigating these unique times.

We hope that you and your loved ones are, and stay, healthy and well.

Team Tapestry

COVID-19 updates / Global updates / Newsletter - 03/13/2020

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