Guerdon Associates has previously commented on the changes made from BEAR to FAR (see HERE) .
Submissions to the Treasury on the Financial Accountability Regime (FAR) are now closed.
Among other things, Guerdon Associates submission noted:
- FAR has proposed that 40% of variable remuneration must be deferred for four years. This is a change from BEAR which calculated the required remuneration deferred for four years based on variable remuneration or total remuneration. This will encourage firms to abandon variable remuneration in favour of fixed remuneration.
- Under BEAR there are problems with how the amount of variable remuneration is calculated for deferral purposes. LTI value is determined using the face value of an equity grant as the hypothetical (if incorrect) maximum that can be achieved. Inconsistently, the STI value is determined after the performance period and is the is actual pay outcome. This is a case of comparing coronavirus and Coronas. An alternative would be looking at either the maximum opportunity of LTI and STI or the actual awarded STI and vested LTI. Calculating the deferral period from the start of the performance period would also calculate deferral periods consistent between STI and LTI. FAR has not addressed this issue explicitly, although the tea leaves portend potential.
- In some cases, the emphasis placed on variable remuneration alone can be flawed. Current and deferred remuneration may be preferable to looking at fixed and variable remuneration.
See Guerdon Associates’ submission HERE .© Guerdon Associates 2020 Back to all articles