New corporate governance rules will also let companies withhold pay if necessary

Senior executives will face restrictions on when they can sell shares awarded under long-term incentive schemes, according to new corporate governance rules unveiled on Monday.

The Financial Reporting Council (FRC) said: “Share awards granted for this purpose should be released for sale on a phased basis and be subject to a total vesting and holding period of five years or more. [Remuneration schemes should] also include provisions that would enable the company to recover and/or withhold sums or share awards and specify the circumstances in which it would be appropriate to do so.”

The changes are part of a revamp of the UK corporate governance code, which calls on company boards to engage more with their workforces and take more account of staff remuneration when setting executive pay levels. The FRC said: “Formulaic calculations of performance-related pay should be rejected. Remuneration committees should apply discretion when the resulting outcome is not justified.”

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It called on company shareholders to play their part in holding boards to account: “Investors and proxy advisors must assess explanations carefully and not take a tick-box approach.”

The TUC general secretary, Frances O’Grady, said the reforms were a step in the right direction but added: “They are not the shakeup of corporate Britain Theresa May promised and the country needs.

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“While it’s good this new code recognises the importance of workforce engagement, the real test is whether companies give workers more of a say in how they are run.

“The government should have stuck to its commitment to make workers on boards mandatory.”

The Institute of Directors said it was disappointed that a recommendation for executives to undertake continued professional development had been downplayed: “Recent corporate failures have shown the danger of company boards not being aware of their responsibilities and duties, and as the primary governance document for many UK companies, the code should be playing a key role in raising the standards of UK directors.”