The purpose of this note is to set out information on the approaches AIM companies across three groups take in disclosing, structuring and managing executive remuneration including:
This note also sets out broader governance and board information such as:
Information is set out for three groups. AIM50:the 50 largest UK companies on AIM. AIM Mid50 (our term): most of the UK plcs with market caps between £90m-180m at June 2019. These are also substantial growth businesses, often with high institutional ownership. AIM Junior50 (our term): most of the UK plcs with market caps of £40m-£60m at Nov 2019. These are generally at an earlier stage of development, nearly half are not currently profitable.
This information is useful for directors, investors and advisers to AIM companies and other quoted and private growth companies. It gives an insight into what directors, companies and investors prioritise on remuneration and governance as they grow and develop.
We summarise our findings on this page, then we set out information on the AIM50, Mid50 and Junior50 groups followed by full information and commentary.
Across all groups, the large majority include a separate remuneration report. Larger companies have longer reported. 40% of the AIM50 include a policy table, the clearest way of disclosing a structure. 20% of the Junior50 include this table. Similarly, double the number of AIM50 companies’ disclosure current/post-year end salaries than do Junior50 companies.
Larger companies make clearer bonus disclosure (limits, forward and historic targets), reflecting the pressure on the AIM50 and Mid50 to disclose the detail on bonus required on the Premium List. Median CEO bonus maximum is 100% of salary across the groups. 32% of the AIM50 apply deferral, twice the portion of other groups.
Performance shares are the most common long- term incentive structure for each group, including for 50% of the Junior50. Simple options are the lead for 44% of the Junior50, 42% of the Mid50 and 26% of the AIM50. Larger companies are more likely to use earnings as a performance target. Smaller companies are more likely to use share price/TSR targets, or just rely on the simple economics of options.
Larger companies are more likely to apply malus and clawback to bonus and long-term incentives. Just less than 20% of the AIM50 apply a shareholding guideline, but this is only 12% for the Mid50 and 4% of the Junior50.
AGM Voting Just over half the AIM50 (54%) put remuneration to an advisory AGM vote. A quarter of Mid50 and Junior50 companies do this. Around half the companies holding the vote disclose voting percentages. 20% of AIM50 companies have a triennial “binding” policy vote. This figure is 6% for the Mid50 but higher, 12%, for the Junior50.
The QCA Code dominates, particularly for the Mid50 (98%) and Junior50 (92%). For the AIM50, this is 60%, with a substantial minority, 40%, adopting the FRC Code which is required of UK Premium List companies.
Information on AIM50, Mid50 and Junior50
|Equity value||Aerospace and defence||0||0||1|
|Above £1 bn||11||0||0||Food and beverages||5||0||2|
|£500m to £1 bn||20||0||0||Retail, personal goods||4||3||1|
|£300m to £500m||17||0||0||Travel and leisure||4||4||3|
|£200m to £300m||2||0||0||Media||2||3||1|
|£90m to £180m||0||50||0||Software + computer svcs||6||12||11|
|40m to £65m||0||0||50||Tech hardware and equip||1||1||0|
|Above £500m||4||1||1||Fixedline, mobile telecoms||1||0||1|
|£200m to £500m||14||3||2||Healthcare, medical||2||4||1|
|£50m to £200m||26||21||15||Pharma, biotech||3||4||5|
|£20m to £50m||3||17||11||Support services||6||5||4|
|£10m to £20m||3||3||8||Industrial engineering||0||2||1|
|No revenue||0||0||7||Construction and materials||1||2||2|
|PBT||Household goods construction||2||2||3|
|Above £100m||1||0||0||Real estate||2||2||4|
|£50m-£100m||5||0||0||Financial services, related||4||2||2|
|£20m-£50m||23||3||0||Oil and gas||3||1||2|
|Corporate Governance Code||AIM 50||MID 50||JUN 50|
|FRC UK Corporate Governance Code 2018||19||4||1|
|QCA Corporate Governance Code 2018||30||46||49|
|Other (Association of Investment Companies)||1||0||0|
The AIM50 comprises the largest 50 UK companies on AIM with a lower cut-off around £300m. All members of the AIM 50 are also members of the AIM 100. AIM50 at June 2018 with equity values at that date. Data is taken from annual reports for periods ending from May 2017 to May 2018. One AIM 50 company did not have executive directors.
The AIM Mid50 is our selection of most of the AIM UK plcs with market caps from £90-£180m as at June 2019. Annual reports are for periods ending from May 2018 May 2019.
The AIM Junior50 is our selection of most of the UK plcs with market caps between £40m and £60m as at November 2019. Annual reports are for periods ending from May 2018 to May 2019.
|Directors’ remuneration table in front of annual report||45||46||47|
|Separate remuneration report in front of annual report||44||46||44|
|Remuneration report 3+ pages long||39||37||30|
|Remuneration report 6+ pages long||16||15||11|
|Letter from RemCom chairman or substantial introduction||17||20||18|
|Current salary disclosed – salary post reported year end||22||13||11|
|ANNUAL BONUS DISCLOSURE, LEVEL & WORKING|
|Annual bonus maximum for CEO disclosed||33||28||18|
|Annual bonus can be paid but no disclosure of maximum||15||19||27|
|No annual bonus or no reference to annual bonus||2||3||5|
|Maximum annual bonus for CEO (% of salary)|
|– Max at 200%||1||0||0|
|–||Max at 120-150%||14||3||2|
|– Max at 100%||14||17||14|
|–||Max at 30-70%||4||5||2|
|–||Max at 15-25%||0||3||0|
|Annual bonus on-target level for CEO disclosed||17||13||4|
|Forward bonus structure – specific criteria disclosed||18||19||10|
|Forward bonus structure – specific criteria and weightings disclosed||9||11||5|
|Post-event disclosure of bonus target levels and workings||12||10||6|
|Applies bonus deferral||16||7||8|
|Bonus has malus / clawback||15||5||4|
|LONG TERM INCENTIVE STRUCTURE|
|Lead structure is performance share plan||29||29||25|
|Lead structure is market value options||13||21||22|
|Current value creation plan||1||0||2|
|Uses earnings (EPS, EBITDA or profit) as LTIP performance condition||19||15||17|
|Uses TSR/share price as LTIP performance condition||8||10||15|
|Uses both earnings and TSR as performance condition||9||1||11|
|Uses other internal financial performance measure as a condition||1||4||3|
|LTIP has malus / clawback||13||10||5|
|Shareholding guideline 200% of salary or more||5||2||0|
|Shareholding guideline 100%-150% of salary||4||4||2|
|Annual advisory vote on remuneration||27||13||13|
|Voting percentage on advisory vote disclosed||15||6||5|
|Vote below 95% (includes votes below 80%)||3||1||0|
|Vote below 80%||1||1||0|
|Policy vote every three years||10||3||6|
|Voting percentage on policy vote disclosed||6||3||3|
|REMUNERATION COMMITTEE MEMBERSHIP|
|Chair of company is on RemCom||26||17||32|
|Chair of company is RemCom chair||5||4||12|
It is difficult to claim compliance with the QCA Code without having a standalone remuneration report. The QCA Code seems fairly clear. Three pages is probably a minimum for providing an effective level of disclosure, but some companies pack a lot into two pages. Five to six pages allows high but not excessive disclosure and is generally much clearer than 20 pages of Premium List remuneration disclosures. It is good to see disclosures covering three or more pages for 60% of Junior50 companies.
An introductory letter from the RemCom chair allows a clear explanation of policy, its link to strategy, decisions made in the context of performance, changes and forward plans. A letter demonstrates the chair is taking full responsibility and welcomes feedback.
A table covering policy across all areas can make policy clearer and help ensure descriptions are comprehensive. Institutions prefer this approach as companies grow.
Disclosing salary levels post the reported year end shows an open approach. We see little merit in delaying disclosure by a year. RemComs should take decisions and disclose promptly and positively.
Institutions are concerned that low bonus disclosure indicates weakly defined structures creating more scope for RemCom discretion which they dislike. We see that growth companies, particularly Junior50 companies, need to strike a balance between setting a firm framework with having scope for judgement in what are often fluid and dynamic circumstances.It is in all parties’ interests to agree objectives, priorities, weightings and targets at the start of the year. It is reasonable for investors to want disclosure of limits and priorities for the current year and at least some specific commentary for the past year on performance against targets.AIM50 companies may be subject to negative AGM voting if details of weighting, threshold and stretch targets are not disclosed post event. We see little pressure from institutions on companies outside the AIM50 to defer bonuses into shares and see merit in smaller companies delineating clearly between annual and long-term incentives.
Smaller companies are more likely to rely on share price growth as the driver of the value of long-term incentives, with more of them using market value options or performance shares with share price/TSR targets. This approach remains significant but is diluted but as companies grow.
Companies having the ability to claw back amounts paid in bonus and long-term incentive in defined circumstances such as misstatement of results or personal misconduct is fair and reasonable and a sign of good governance. Shareholding guidelines, a target shareholding value which executives are expected to acquire over a defined period, remain rare across AIM.
It is useful for companies and reasonable for shareholders to have an advisory AGM vote on the remuneration report. If the vote is positive, it puts RemCom in a strong position. If there is discontent, it is better to know the extent of it and better that it is expressed on an advisory remuneration vote than on binding director re- election or share authority votes.
It is difficult to justify not disclosing AGM voting outcomes. The QCA Code seems fairly clear. If companies do not address minority negative voting or communications from shareholders, negative voting tends to build each year.
Some institutions are asking the largest AIM companies to adopt the Premium List requirement to hold a binding policy vote every three years. In the absence of significant shareholder pressure, we see this is unnecessary.An annual advisory vote should provide an effective forum for points on remuneration as a whole to be debated and views expressed.
Governance best practice prefers that the company chair is not RemCom chair. There can be merit in the company chair not being on the RemCom at all, so they are not directly involved in the detail although where a company has three or four non-executives, most NEDs need to be on most committees. Our research indicates that it is very common for company chairs to be on RemCom, and often to be its chair.
|BOARD STRUCTURE, RE-ELECTION CYCLE||AIM 50||Mid50||Junior50|
|Average number of directors per company||6.7||6.0||5.7|
|Average number of executive directors||2.7||2.7||2.5|
|Average number of non-executive directors||4.2||3.6||3.2|
|Chairperson is executive||3||9||4|
|Number of companies with no executive directors||1||0||0|
|Number where all directors put up for re-election at each AGM||23||20||13|
Generally, boards have 5-7 members including 2-3 executives and 4-5 NEDs. Numbers fall gently as the size of company falls. Junior50 companies are less likely to put all directors up for re-election each year.
|Companies with female CEO||7%||2.6%||4%||4%||4%|
|Female executive directors||10.9%||6.4%||8%||4%||8.1%|
|Companies with at least one female executive||25%||13.6%||20.4%||14%||20%|
|Female non-executive directors||38.9%||27.3%||16.8%||13%||10.5%|
Data on female directors at FTSE 100 and FTSE 250 is taken from Cranfield University Female FTSE Board Report 2019
the AIM Mid50
Data from the FTSE100 and FTSE250 is included for context. These companies are under particular pressure to increase female board representation. It is important to note that FTSE100 companies are substantially larger by market cap. The market cap range for FTSE 250 companies is £700m to £4.5 billion. 11 AIM50 companies had market caps above £1 billion and 31 – above £500m
|CEO LENGTH OF SERVICE||AIM 50||MID 50||Junior50|
The data on CEO tenure is fairly consistent across each group. Perhaps not surprisingly if smaller companies are more likely to be earlier stage, the CEO of a smaller company is more likely to be the founder.
|Less than 1%||27||20||22|
|Less than 1%||8||3||13|
|No disclosure of Director shareholding/ information not available||0||1||0|
On AIM there is ample opportunity to invest alongside CEOs and boards.
h2glenfern Remuneration Advisory provides advice on all aspects of executive, senior team and board remuneration and on company-wide annual and long-term incentives.
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