Question to the Department for Business, Energy and Industrial Strategy:

To ask Her Majesty's Government what assessment they have made of the impact on corporate governance of annual bonus award arrangements such as Carillion’s, which in 2016 gave greater weighting to the Chief Financial Officer’s performance for technology (8 per cent) and risk management (8 per cent) than for net debt (6 per cent) and pre-tax profit (6 per cent).

Under the Large and Medium-Sized Companies and Groups (Accounts and Reports) Regulations 2008, as amended in 2013, annual bonus awards may only be paid within the terms of a remuneration policy approved by shareholders through a binding vote. The remuneration policy must state how any annual bonus targets support the short and long-term strategic objectives of the company. Additionally, the UK Corporate Governance Code principles state that directors’ remuneration should be designed to promote the long-term success of the company.

Within this regulatory framework, it is a company’s shareholders who are responsible for scrutinising and, where necessary, challenging individual bonus and other remuneration arrangements for its directors, including the weighting of different performance measures.

The Government’s current Insolvency and Corporate Governance consultation launched on 20 March 2018 has invited views, among other things, on what more could be done to promote more engaged shareholder stewardship of companies which could include more active monitoring of risk and ensuring that executive remuneration policies align the interests of directors with the interests of the company.