Executive remuneration. The Tate & Lyle PLC case study

Table of Contents

1 Literature Review
1.1 Corporate Governance Code evolution
1.1.1 The Cadbury Report
1.1.2 The Greenbury Report
1.1.3 The Hampel Report
1.1.4 The Combined Code era (1998-2009)
1.1.4.1 The Directors' Remuneration Regulations
1.1.4.2 The Higgs Report 2003
1.1.4.3 The Revised Combined Code (2003)
1.1.4.4 From Enron to Lehman Brothers
1.1.5 UK Corporate Governance Code 2010
1.1.6 The impact on the executive remuneration for the period 1998-2010
1.2 Current Regulations, Reforms and Developments of the Corporate Governance Code 2012
1.2.1 Changes consolidated from Corporate Governance Code 2010 to 2012
1.2.2 The BIS shareholder voting rights consultation
1.2.3 The 2012 consultations on remuneration reporting regulations
1.2.4 Developments in Corporate Governance 2012
1.2.5 Developments in Corporate Governance 2013
1.2.6 Changes in Regulations on Executive Remuneration
1.2.7 The Grant-Thornton FTSE 350 Corporate Governance Review 2013
1.3 Academic Literature Review
1.3.1 Executive Remuneration
1.3.1.1 The structure of the remuneration
1.3.1.1.1 Bonuses
1.3.1.1.2 The stock options
1.3.1.2 The internal perspective
1.3.1.3 The pay and per ormance linkage
1.3.2 The role of remuneration consultants
1.4 Summary

2 The Tate and Lyle plc. and competitor case study
2.1 Tate and Lyle plc. overview
2.2 Analysis of Tate and Lyle plc. position
2.2.1 Basic financial figures
2.2.2 Rato analysis for period 2010-2013
2.2.3 Ratio analysis for period 2012-2013
2.2.4 The remuneraton report
2.2.4.1 Base salary
2.2.4.2 The annual bonus
2.2.4.3 LTIPs or Performance Share Plan (PSP)
2.2.4.4 Personal share ownership
2.2.4.5 Structure of total earnings for CEO and CFO
2.2.5 Tate and Lyle plc. summary
2.3 Overview over Associated Britsh Foods plc. positon
2.3.1 Basic financial figures
2.3.2 Rato analysis or period 2010-2013
2.3.3 Rato analysis or period 2012-2013
2.3.3.1 The ABF remuneraton report
2.3.3.2 Base salary
2.3.3.3 The annual bonus
2.3.3.4 Long-term incentves (LTIs)
2.3.3.5 Personal share ownership
2.3.3.6 Structure of total earnings for CEO and CFO
2.3.4 ABF Plc. summary
2.4 Comparison
2.4.1 Rato analysis comparison
2.4.2 Long-term comparison
2.4.3 The executve remuneraton and remuneraton report comparison
2.5 Evaluaton against literature
2.6 Summary

3 Summary of findings
3.1 Final summary of achievement of structure and aim from introducton
3.2 Final conclusion and recommendatons

4 References

5 Appendix

Abstract

Executive Summary

This report provides an analysis and evaluation over the executive remuneration issues. The basic issues in this report raised the public debate and the academic literature findings over the misalignment between the pay and performance and the level of executives' emoluments.

In order to provide a more specific and practical perspective of the issues raised this project used a case study of Tate & Lyle plc. and its main competitor Associated British Foods plc.. Methods of analysis include the review over the UK corporate governance evolution on executive remuneration matters. The second part of the review is based on the academic literature review. After the literature review on both the Code and the academic research there will be a financial and ratio analysis in order to provide basic calculations for both companies. All the financial figures will be provided by the companies' annual report. After the financial analysis and ratio analysis there is a comparison between the financial status of both companies and then the comparison between the executive remuneration for each CEO and CFO. All calculations can be found in the appendices. Results of data and literature review analysed showed that both companies have a certain degree of alignment between executive remuneration and company's performance. Furthermore, the internal structure of both companies and the level of salaries in the hierarchy give an explanation over the level of the executive emoluments. Moreover, the structure of the executive remuneration is approved in both companies by the majority of the shareholders and there is evidence that the short-term and long-term performance of the companies have an important effect on executives' salary. Last but not least, there is evidence that the executive remuneration is almost the same across the same industry even if the performance between two companies is different.

The report finds that both companies are in line with UK corporate governance code guidelines and aligned pay with performance. However, there are not adequate case studies through different industries in order to have a more precise information over the relationship between pay and performance of other companies. Moreover, there are not many case studies indicating if the CEO payments are extremely high or in line with the needs of competition on each industry sector. The major area of weakness on the academic literature is the lack of case studies which can provide more detailed information of practical implementations of the Code and academic literature. Moreover, the institutions and most of the academic research is based on using average figures based on the FTSE100, FTSE250 and FTSE350 Indexes lacking issues that may rise by a more detailed research.

The report also investigates the fact that the analysis conducted has limitations. Some of the limitations include the lack of ABF's annual report for 2014. In order to overpass this difficulty this project used the annual report of 2013 for both companies. Another limitation was the lack of case studies over the executive remuneration issues based on certain companies rather than the average trend of an Index. Last but not least, there was no other case study of a company over the executive remuneration issues in order to use the methodology.

Introduction

Over the past two decades, since major accounting scandals and companies erupted, there was a continuous improvement over the corporate governance code in the UK. The major changes started with the Cadbury Report in 1992 which provided a set of principles and guidelines for good corporate practices. However, the following years' reviews and reports such as the Greenbury Report tried to cope with issues raised by the executive remuneration. The main issues raised were executive remuneration level, the structure of the remuneration and its motivation and the gap between payment and performance. Even the current developments of the UK Corporate Governance Code tried to cope with several issues such as the level and the structure of executives' emoluments by enacting for example the binding vote of shareholders over the approval of the executive remuneration in the annual general meeting. Nevertheless, there is a debate over the level of the executive remuneration and the relationship between payment and performance. Many factors were contributed to higher levels of remuneration. However, the academic literature was structured over the average performance of the listed companies of the FTSE 350 Index. This might give the average trends over the practical implementation of the UK corporate governance code principles but it didn't provide enough information based on specific characteristics of each industry sector.

Aim and Objectves

This project aims to investigate the main executive remuneration issues such as the relationship between pay and performance and the level of the executive salary from a micro-perspective. In order to assess the issues in the micro-perspective this project will use as a case study the sugar company Tate and Lyle plc. and its main competitor Associated British Foods plc. . In order to achieve this aim it will be used the available information over the UK corporate governance code in order to extract the changes on principles and guidelines concerning the executive remuneration. Furthermore, data will be collected from secondary sources from academic journals which give the evidence of the practical implementation of the UK corporate governance code throughout the UK companies. Moreover, data will be extracted from both companies' annual reports in order to assess the practical implementation of the two previous data sets.

Research methodology

Most of the information used in this project derived from secondary sources of information and the academic literature accessible via academic research engines. The UK corporate governance code reports and reviews are also extracted via internet. Furthermore, this project used the annual reports of 2013. This project didn't use the annual reports of 2014 as Associated British Foods plc. did not published its 2014 annual report. In order to assess the practical implementation of the executive remuneration principles on both companies there will be used some basic calculations of ratios and some basic statistics for their comparison. These calculations will give the actual financial position of each company. Then executive's level of remuneration will be compared with the performance of each company. The evidence of each company will be compared with the academic literature review evidence providing us useful information about the executive remuneration issues in practice.

Purpose and significance of the project

The purpose of this project is to assess the level of implementation of the literature review evidence in a micro perspective. In order to achieve this objective this project is based on the case study of Tate and Lyle Plc. and its main competitor Associated British Foods Plc. Both companies are the main competitors over the UK sugar industry. Moreover, the overview of the practical implementation of the executive remuneration principles offers an insight of the practical implementation of the academic research findings over the executive remuneration. The way that these two companies are implementing the main aspects may reveal the reasons behind the level of the executives' salaries and the relation between each company's performance and the total earnings of the senior directors. This project will provide significant information for two reasons. First, it provides evidence of the executive remuneration in specific companies and not based in general trends. Second, these two companies are the two major sugar companies in UK so the evidence will cover a whole industry's practices over the executive remuneration issues.

Chapter organisation

There are three chapters in this project. The first chapter reviewed the literature both from institutions and from academic research. The first part gives a brief overview over the main reports and reviews which concluded to the UK corporate governance code. The epicentre of this review is the executive remuneration. The second part provides the evidence from the academic literature of the general trends of the executive remuneration issues.

The second chapter is dedicated over the overview, comparison and the comparison against literature of the Tate and Lyle plc. and its main competitor Associated British Foods Plc. both in terms of financial performance and executive remuneration policy. In this chapter some basic financial ratios and basic statistics of each company will be presented in order to be able to compare these two companies and assess both the relation of the executive remuneration and the companies' performance and the reasons behind the level of executives' emoluments. In the last part o this chapter there will be a comparison between the literature review evidence and the evidence derived from the comparison between Tate and Lyle plc. and the Associated British Foods plc. The last chapter will include the conclusion and recommendations over the findings of this project taking into consideration the comparison between the literature review and the findings of the companies' comparison.

Acknowledgements

I would also like to thank my supervisor Mr Ilias Basioudis for his helpful advice and support during the analysis and interpretation phase as well as for his helpful comments and encouragement during the writing up of this project.

1 Literature Review

1.1 Corporate Governance Code evolution

The Corporate Governance is a model structured on principles and guidelines in order to optimise the control and the governance of an entity. The very core of the UK Corporate Governance based on principles and recommendations of best corporate governance. The listed companies should comply with the principles of the Code or to explain the situation of non-compliance. The UK Corporate Governance core is based on soft-laws which provided flexibility and agility to the companies in order to adapt to the rules taken into consideration the uniqueness of each firm. In the next sections the evolution of the UK corporate governance by the reviews and reports from 1992 until 2012 will be presented.

1.1.1 The Cadbury Report

The current UK Corporate Governance Code had its rout back in early 90's from the aftermath of scandals such as those of Colorol and Polly Peck (www.ibs.cam.ac.uk. 2014). In 1991 Sir Adrian Cadbury formed the Cadbury Committee in order to provide guidance on good corporate governance practices in order to restore the lost trust between companies and investors (Jones and Pollitt, 2001). Nevertheless. during the preparation of The Cadbury Report. two more scandals erupted. the Bank of Credit and Commerce International collapse and the Maxwell Group scandal. These incidents hasted the publishing of the Cadbury Report in 1992 (www.ibs.cam.ac.uk. 2014). Furthermore. the Cadbury Report aimed to cope with the top brass compensation issues by giving the right to the shareholders to monitor and question the remuneration committees during the annual general meeting (AGM). There should be a descriptive disclosure of director's compensation including separate figures for salary and performance based payments. Moreover. another step to the shareholders engagement and remuneration monitoring was the alteration of the members of remuneration committees. According to the Cadbury Report. the majority of the board members of the remuneration committee should be non-executive directors (NEDs). Although. NEDs' remuneration packages it is recommended not include stock options incentives as this could result to a degradation of their independence (www.governance.co.uk. 2014). As a result. the Cadbury report signalled a new era for the field of corporate governance. It was a leading event which drove to further implementations and a more discreet epistemology on corporate governance matters (www.ibs.cam.ac.uk. 2014).

1.1.2 The Greenbury Report

Along 1990's and after the Cadbury Report another issue raised concerning the executive emolument. There was a significant increase of director's salaries which attracted the attenton both of investors and the public (Jones and Pollitt, 2001). To deal with this problematc, the confederaton of Britsh Industry established the Greenbury Committee in 1994, chaired by Sir Richard Greenbury, which emphasised the growing levels of directors' remuneraton (www.ibs.cam.ac.uk. 2014). The main objectve of the Greenbury Report was ''To identfy good practce in determining Directors' remuneraton and prepare a Code of such practce for use by UK PLCs ''(www.icaew.com. 2014). According to the Greenbury Report, the main members of the remuneraton committees should be non-executve directors (NEDs). Nevertheless, there was a different recommendaton about the servicing tme of the committee from 3 years according to Cadbury report to 12 months (Jones and Pollitt, 2001). Moreover, their main responsibility is to specify the level of director's compensaton packages. Furthermore, each payment package should be fully disclosed and there should be approved by the shareholders during the AGM. Another important aspect of the report was the need of alignment between executve remuneraton and performance as long as the ability to ''attract, retain and motvate'' high quality managers without overpaying them. Another important factor that managed to restructure the way of the executve remuneraton structure was the favour of the Greenbury report over the long-term incentves (LTIs) schemes in the contrary rather than share opton schemes as promotng more the alignment of interest between principal and steward (Hughes, 1996). Last but not least, another important proposal stated that there should be a more in depth monitoring of the awarding compensaton for leaving CEO's and also take into consideraton the performance and the reasons for departng (www.icaew.com, 2014).However, the Greenbury Report did not enjoyed a broad acceptance as failed to address issues between the director's compensaton and performance according to shareholder's perspectve (Jones and Pollitt, 2001). The ollowing year another report published by Sir Ronald Hampel which aimed to provide a more detailed informaton about the practcal implementaton of the two previous reports.

1.1.3 The Hampel Report

During 1996 the Financial Reporting Council (FRC) established another committee. The main purpose of this committee was to revise the depth of practcal implementaton of the Cadbury and Greenbury Reports and monitor in what extent objectves were met (www.kingstoncitvgroupl 2014). The Committee on Corporate Governance chaired by Sir Ronald Hampel, published the Hampel Report which resulted in the compositon of the Combined Code of the Corporate Governance in 1998 (www.kingstoncitygroup, 2014). The main perspectve was to retain the equilibrium between business prosperity and accountability. In order to achieve these targets, the FRC realised that the optimum way would be through the flexibility of broad principles rather than strict rules (www.ibs.cam.ac.uk. 2014). Through the ''comply or explain'' model, companies would be more anile to suit their corporate governance structure under their unique needs (www.ecgi.org. 2014). Furthermore, Hampel report established a perspectve based on agency theory and the corporate governance as a tool to deal with potental conflicts between the principal and agent (Jones and Pollitt, 2001).

According to the Hampel Report, there are three main principles about executve remuneraton. Firstly, the company should be able to set the appropriate payment package in order to attract and retain the needed executves and there should be a link between payment and both on company and individual performance. Secondly, the remuneraton policy should be structured in a formal and transparent way excluding the ability of directors to get involved in this procedure. Thirdly, the Hampel report incorporated the aspect of Greenbury Committee which dictates the need to disclose a descriptve statement of executve remuneraton policy and details on each director payment. However, this should be carried out by the remuneraton committee as a subcommittee of the board and no more as a truly independent committee (Williams, 1998). Furthermore, the Hampel Report retained the same principle of the Cadbury Report concerning NEDs' remuneraton. According to the report, NEDs should not have share optons as this may affect their judgement (Chapman, 1997).

Nevertheless, after the publicaton of the draft of the Hampel Report there was a certain degree of critcism. According to Percival-Straunik (1997) the Hampel Report failed to give answers to corporate governance issues and providing nothing new compared to Cadbury and Greenbury reports.

On the contrary, a number of researches conducted in order to provide an insight of the implementaton level of good corporate governance practces by the UK companies. Most of them indicated that the level of compliance to the Cadbury and Greenbury reports' guidelines from 1993 to 1996 grew significantly. The evidence of these studies empowered the argument of Sir Ronald Hampel that there was no need for radical changes on corporate governance and that the voluntary compliance was effectve (Rayton and Cheng, 2009).

Another study presented what chairmen think about the effectveness of the Hampel report. According to this research, chairmen agree that the flexibility of the 'comply and explain' model and the basic principles, rather than strict rules, are on the right track. Moreover, more than half believed that there was given more emphasis on accountability than company prosperity which might contribute to higher compensaton level (Clarke et al., 1998).

1.1.4 The Combined Code era (1998-2009)

The aftermath of the Cadbury, Greenbury and Hampel reports led to the formation of the Combined Code in 1998. The Combined Code set as status quo the previous principles and recommendations. The Code included two sections. The first provided the guidance and principles of good practice for the companies and the second one did the same about the shareholders. However, the Code was lacking a more in depth about the institutional investors. This shortcoming covered later by the Myners review in 2001 (www.kingstoncitygroup.com. 2014).

From the very beginning of the new millennium, economies witnessed another vicious circle of corporate fails and scandals. Occasions like Enron,Tyco and Worldcom has shaken again the confidence of investors towards companies (Jones , 2011) The outcome in US was the Sarbanes- Oxley Act which voted on into law in 2002 . At the same time in UK the government appointed various reviews due to the changes and international developments after the Sarbanes-Oxley Act and the European Union company law review (Dewing and Russell, 2003).

Although, at the pre-Enron era another review appointed by the UK Government. The Myners review in 2001 tried to settle down basic principles of relationships between institutional investors and companies. It was oriented towards a more in depth insight of the issues which affected the institutional decision-making on investments. The aim was to re-establish and enhance the communication between these two partes and inform the investing side about their rights and responsibilities as owners (www.kingstoncitvgroup.com. 2014).

1.1.4.1 The Directors' Remuneration Regulations

In 2002 the Directors' Remuneration Regulations (DRR) introduced. These regulations set a more concrete monitoring on directors' compensation and empowered the position of shareholders (www.kingstoncitvgroup.com. 2014). The DRR of 2002 tried to fill the gap of the Companies Act 1985. The new provisions were more long-term oriented and more informative towards shareholders through detailed annual reporting of remuneration policy and the introduction of certain performance criteria. There should be reported details behind the rational of changing the remuneration policy; no performance related share options and long term incentives ; the information contained in the report should be approved by directors , member of board or secretary on behalf the board ; legal acton against the involved staff if the procedure of the reported information is broken . Furthermore, the DRR included a significant reform on shareholders' benefit. Under the DRR shareholders should approve the report in the AGM. If the company did not comply with this rule then there would be legal actons against every responsible officer of the firm (www.legislati'on.gov.ukl 2014). Nevertheless, shareholders' approval introduced by Greenbury report in 1994 (www.icaew.com. 2014). However, the empowerment of shareholders on executive remuneration policy criticised intensively (Lee, 2002).

On the contrary, several studies based on Cadbury report notion mentioned that shareholders' lack of information and the very nature of the remuneration policy cannot be subject of a 'for or against' vote during the AGM. Another argument set the lack of incentive on behalf of shareholders, as the difference between profit and cost is low in terms of time involvement. In many cases, minor shareholders have taken a 'hands off approach'. Last but not least, there was the perspective that the executives' salaries are insignificant compared to the profit of the company (Lee, 2002).

The aim of the DRR was to minimise the information asymmetry and to equip shareholders with the needed information in order to exercise their voting rights during the AGM. The rising technical complexity of directors' compensation packages could affect the disclosing rules. The issue was raised when the DRR introduced very complicated disclosure requirements without providing guidelines on how the information should be disclosed. As a result DRR made a step towards the scrutiny of executive remuneration but in the same time raised debates on the appropriateness of shareholders lack of technical knowledge, ambiguous judge and the lack of the shareholders engagement on these matters (Lee, 2002).

1.1.4.2 The Higgs Report 2003

In 2002, Derek Higgs, an experienced City investment banker appointed by the Department of Trade and Industry (DTI) and HM Treasury to prepare a review of the Combined Code following a review of company law(www.kingstoncitvgroup.com. 2014).

The Higgs report emphasised on the role and effectiveness of non-executive directors (NEDs). The report aimed to provide recommendations to the Combined Code focusing on the independence and effectiveness of NEDs. According to the report, the remuneration of a NED should include shares but not hold options in the same manner as the Cadbury and Greenbury reports indicated. Furthermore, there should be an explanation about exceptional payments in form of share options and this should be approved by the shareholders. Moreover, when an employee is serving as NED in another firm and at the same time he retains remuneration on the company this should be disclosed in the remuneration policy. Last but not least, remuneration committee (RM) gains more important tasks. Firstly, RM is responsible for setting the level and structure of chairman's and all executives' compensation. Secondly, RM should disclose information about its principal duty and thirdly, RM is responsible for appointing remuneration consultants (www.aci.kpmg.com.hk, 2009).

By these recommendations, Higgs Report tried to set a definition of independence and to expand further the influence of the NEDs providing more opportunities for shareholders to communicate with the firm. So we can say that the very nature of the Higgs report tried to increase the transparency and the evaluation of the board (www.kingstoncitygroup.com. 2014).

During 2002 Financial Reportng Council (FRC) and DTI published the Smith Report and the Tyson Report respectvely. The first one, emphasised on providing guidelines on audit committees and the second one focused on the recruitment and development of the non-executve directors. The final outcome of these reports was the revised Combined Code of Governance of 2003(www.kingstoncitvgroup.com. 2014).

1.1.4.3 The Revised Combined Code (2003)

The outcome of Higgs and Smith report resulted in the revision of the Combined Code in 2003. There were significant changes which encompassed independence of the board by separatng CEO and Chairman roles and the number of NEDs. Another important aspect was the experience of the committee members as far as the disclosure of the annual performance of the board, committees and directors. However, there was a conflict with the Higgs report. For example, chairman was eligible for the chair of the nominaton committee except the case in which the committee would appoint a new chairman (Jones and Pollitt, 2001).

1.1.4.4 From Enron to Lehman Brothers

Although, there were numerous reviews and recommendatons during the decade, seven years after the Enron incident, the collapse of the Lehman Brothers in 2008 and other UK and European Banks failures triggered another round of debate over the Corporate Governance issues. The discussion emphasised on the high levels of executve emoluments which blamed as the core of high risk strategies and short term incentves by the top brass. These issues raised potental weaknesses of corporate governance which were not able to protect shareholders rom high risk takings and to set incentves on a more sustainable business practces. In order to deal with these issues, the UK government appointed Lord Turner to make a review on the financial crisis impacts and the reasons behind them (Jones and Pollitt, 2001).

The Turner Review focused on the banking sector and recommended a full augmentaton of the current practces. The Turner Review emphasised more on internal risk management as a cornerstone o the banking sector corporate governance issues. The main aspects o the review based on stricter requirements and tghter regulatons on bank reserves, liquidity and risky trading actvity. Furthermore, the review stated the need of internatonal cooperaton on remuneraton policies in order to avoid short term and risk based strategies. Moreover, there was a more in depth recommendatons about the correlaton between remuneraton and risk and the linkage of pay and performance (www.cicero-group.coml 2013).

At the same time, another review published in 2009. The Walker Review, a heavily UK Government sponsored review after the Higgs Report, carried out by Sir David Walker an ex-City Regulator about the banking crisis. The content of the review emphasized on 8 sectons; the board size, compositon and qualifcaton; functoning of the board and evaluaton of performance; governance of risk and remuneraton. The main recommendatons about the board focused on the tme commitment of NEDs, their adequate knowledge and expertse of the business and the sufficient tme commitment of chairmen to the company. Moreover, the review provided recommendatons about the role and engagement of the shareholders. Shareholders should have been provided substantal informaton about material changes over the share changes. Furthermore, the FTSE 100 listed fnancial and insurance companies should establish risk committees in which CEO and Chief Risk Officer (CRO) should report back and should also be chaired by a NED. Last but not least, the remuneraton committee has the liability to build the main principles of the remuneraton policy both for the whole frm and especially of the high paid employees. (www.iod.com. 2014)

The outcome of these reviews create a basis of broad principles of the best corporate practce. UK listed companies on the London Stock Exchange must comply to the Combined Code provisions or to provide an explanaton if they do not. In 2009, the FRC proposed the revision of the Combined Code which concluded to the UK Corporate Governance Code of 2010 (www.kingstoncitvgroup.com. 2014).

1.1.5 UK Corporate Governance Code 2010

The revision o the Combined Code started on 2009 carried out during an important economic decline taken into consideraton the previous reviews such as the Walker Report. Although, the differences could not be translated to a radical change of the previous Codes, the UK Corporate Governance of 2010 added principles which have been kept untl 2012. The UK Corporate Governance of 2010 implemented more emphasis on accountability by recommended annual re- electon of directors for the FTSE 350 companies and the responsibility of chairman to report how effectve of board. Furthermore, the risk became main responsibility of the board and there was the necessity to explain the business model. Concerning the performance there should be an external board evaluaton and an every 3 years assessment report and chairman should arrange regular meetngs with the board. Moreover, chairman should have a key role on constructve challenge as a leading personality in the boundaries of the company. At this point, we should menton that in terms of remuneraton, the noton of the alignment of the pay and performance empowered further. There should be a more long-term orientaton remuneraton structure which encourage the future success of the company (www.frc.org.uk, 2010)

The FRC also pointed three main points which mentioned through the communication with the respondents. Firstly, FRC clearly states that non-financial performance indicators should be used where they are suitable and do not apply in general. Secondly, a question raised about the expediency of the risk adjustments of bonuses except the fnancial services sector. Last but not least, in cases o misstatements or misconduct companies are able to reclaim per ormance-related payments (www.frc.org.uk, 2010).

At the same time, the FRC in order to empower and supplement the UK Corporate Governance Code, published the frst UK Stewardship Code. The UK Stewardship Code was published in order to promote the shareholders engagement and specifc the institutional investors and asset managers as the major shareholders of the UK frms. According to the Stewardship Code, institutional investors should report their engagement policy and scrutiny over the company they invest (www.frc.org.uk, 2010). That was an attempt to stimulate institutional shareholders to act in a more intensive way, not only to govern through the stock market and to stop acting like ''absentee landlords''(Chefns , 2010).

1.1.6 The impact on the executive remuneration for the period 1998-2010

In September of 2011, the Department for Business, Innovation and Skills published a discussion paper the impact of the corporate governance on the executive remuneration. The outcome of this journey cannot be characterised as success. As it was mentioned above, the orientation of executive remuneration based on the independence of the remuneration committee which structures the remuneration policy, the executive payment as a way to attract and retain high quality executives without overpaying them, the alignment between pay and performance in order to minimise the agency costs and the mandatory character of the principles of the Corporate Code.

The results of this discussion raised a number of issues according to the effectiveness of the corporate governance guidelines on the executive payments. The evidence of this discussion paper revealed that there was a gap between CEO pay and the performance of the FTSE100 Index. From economic view, the fall of growth and economic capacity, should have restraint high payments as did with the stagnation of the wage growth. From corporate governance perspective, the high levels of executive compensations of the biggest listed companies were incoherent with the Index, general economy and even the frm's performance (www.gov.uk. 2011).

To be more specifc, the period from 1998 to 2010 there was a signifcant increase of the median total remuneration from an average of £1m to £4.2m of the FTSE100 CEOs. The explanation provided was the growth of companies, the effort to attract high talented executives and the structure of remuneration. Responding to this problematic, the UK Government stated that the problem were the issues of the emoluments' structure and effective alignment to the performance rather than the lavish payments of the executives. Although, observing the velocity between the increase of CEO salary and the increase FTSE100 Index there can be no supporting evidence about the connection between the reality and the remuneration levels as a connected to performance indicator. Another, issue for discussion was set by the shareholders concerning the role and the diversity of the remuneration committee which resulted to loose challenge over the remuneration policy. Moreover, there were issues revealed between the relations between the remuneration committees, companies and remuneration consultants which could drove in potential conflicts of interest. Last but not least, the complexity of the remuneration packages has led many groups such as academics, investors, government and companies to the result o incoherence between pay and performance (www.gov.uk, 2011).

Regarding to the review, the fluctuation of the FTSE 100 Index could be affected by externalities, such as the financial crisis but there is no relevance with the steadily rise of CEOs remuneration. There is also a huge gap between the average Employee Earnings which empowered the public attention on executives' pay. However, it could be mentioned that the very core of the executive remuneration is to attract and retain talented personnel supplemented by the linkage of pay and performance. So even the general performance of the FTSE 100 Index does not indicate a healthy and steady economic output, the competition on high talented executives might raise the levels of emoluments in order to attract them.

1.2 Current Regulations, Reforms and Developments of the Corporate Goiernance Code 2012

1.2.1 Changes consolidated from Corporate Goiernance Code 2010 to 2012

The current UK Corporate Governance Code of 2012, published in September 2012 and was applied to the reporting period on or 1st October 2012. The changes from 2010 to 2012 encompassed a more shareholder-oriented approach but also incited companies to take into account the contribution and interests of other capital providers. Furthermore, there was an extension of wording about comply and explain. To be more specific, the company should explain in detail the very objectives and the reason behind its actons as far as the risk of the decision making. When the company do not comply then it should be able to give the time in which it will comply. There were also additions concerning the board's diversity such as gender, evaluaton of the board taking into account skills, independence, experience and knowledge. Moreover, the new code included additons on the disclosed information and the shareholders engagement provisions. These additions emphasised on the quality of the disclosed information and the necessity the board has to ensure that the information presented was fair, balanced and understandable and provides shareholders to assess the performance, strategy and model of the company. Furthermore, another important aspect of the Code was the implementation of the recommendation about the tendering process of the external auditor every 10 years. This implementation tried to safeguard the transparency and accountability of the company and to break any bonds between boards and external auditing firms. Last but not least, the changes over the remuneration could not characterised radical. The FRC chose to supplement the provision D.2.1. according to which the company should identify the potential remuneration consultants in the annual report and to provide a statement in which should be mentioned any other connection with the firm. That was the main change between 2010 and 2012 over the remuneration issues from the corporate governance perspective (www.frc.org.uk, 2012).

1.2.2 The BIS shareholder voting rights consultation.

The BIS consultation document tried to provide more details on the Government's proposed model of the annual binding vote on remuneration policy, extra support on votes regarding future remuneration policy, on exit payments over one year base salary and on the advisory vote on the way remuneration policy implemented the last year. (www.gov.uk, 2012)

By providing the voting right to shareholders, the Government expected a more intensive engagement and scrutiny of the remuneration policy. The binding vote introduced in order to enhance and to provoke the quality enhancement of shareholders' engagement at the early stages of remuneration structuring process. (www.gov.uk, 2012)

Furthermore, the strong institutional shareholders activism and the fragmentation of the investors' nature raised issues concerning the low possibility of a 50% or more votes against any resolution. There was evidence in which shareholders expressed their displeasure as firms can carry on their compensation policy even if a large minority of shareholders are against. This led the Government to an increased support to shareholders beyond majorities in order to enhance the quality of engagement between the firm and the investors. (www.gov.uk, 2012)

Moreover, the introduction of an advisory vote on the implementation level of the policy aimed to stimulate shareholders engagement and their ability to show their attitude towards the previous policy implementation. However, the advisory vote did not force the company to take acton as mentioned by the provision of the Companies Act 2006, but enables the board to sense the shareholders attitude. (www.gov.uk. 2012)

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