Director Remuneration is proposed, voted on and approved by the Remuneration Committee which reports to the Board. Retail or individual shareholders have a role to play in ensuring Remuneration Policies for the Directors of companies they invest in are fair and reasonable.

Director remuneration should be simple and easy to understand but some Companies make it hugely complex, sometimes to disguise what remuneration their Directors are receiving.

Director Remuneration usually consists of salary, a bonus and share options.

Share Options are an excellent way of providing “skin in the game” to Executive Directors which then aligns their interests with other shareholders. ShareSoc likes to see Directors with meaningful stakes in the companies they manage. These stakes or shares can be acquired in the market or received through options and other incentive schemes.

A bonus is a simpler incentive paid for achieving a sales or profit target.

Share options are also used to motivate, incentivise and reward Directors who achieve good results for the company and their shareholders. They should however reward good performance and not reward Directors for poor or even mediocre performance. 

Remuneration Policy Issues

The issues for a Remuneration Committee (RemCom) to consider are:

  • What are the targets set for the Directors to strive to achieve and are they realistic and how much incentive is necessary?
  • At what share price should the options be granted at?
  • How much might the share price go up?
  • The need to model outcomes.
  • Granting share options will dilute all shareholders and dilution should be less than 10% of the equity over a 10-year period.
  • Front ended, but with some reserved for top ups and new recruits.


Share Options are a simple and clear incentive for managers of small companies.

A typical structure might be 2% for the CEO with another 3% for top team, so the CEO and top team have 5%, but how this is shared out will depend on the roles and skills of the top team.

The most contentious Share Option is Long Term Incentive Plans or LTIPs which are more appropriate for FTSE Companies.

It is unnecessary to grant Directors nil cost LTIPs in companies with a market cap of less than £200m. To reward Directors for doing their job (or even worse in some cases for not doing their job) by giving them options which they don’t have to pay for and where they stand to make a large sum whatever the share price does should be discouraged.

The objective of share options is to encourage and reward and good performance - why should a share price decline be rewarded?

Companies can only make remuneration or loss of office payments which are consistent with the last remuneration policy report to have been approved by shareholders, or which have been approved by a separate shareholder resolution. As such, any changes made to the policy should be approved by shareholders. A remuneration policy AGM is a requirement for main market listed companies and is considered best practice for AIM companies.

A Fund Manager’s view

Top UK fund manager Mark Slater of Slater Investments has accused the bosses of UK Listed companies of ‘rigging the roulette wheel’ with awards of free shares and exorbitant bonuses. 

He says: “receiving a share option is already a huge privilege. The options offer a return for no capital outlay. They are already a one-way bet, unlike true share ownership”.

The issuance of nil cost share options where Directors fail to put their capital at risk mean they are not aligned with the interests of shareholders, Mark Slater argues. In a letter sent to the Remuneration Committees of each of his fund holdings, the Citywire AA-rated manager sets out his ‘dissatisfaction’ with remuneration, arguing ‘a relentless ratcheting of terms and conditions have meant that the interests of Directors and investors have grown steadily further apart’. 

He said allowing Directors this perk is ‘simply rigging the roulette wheel’.

‘We pay market price for the shares we buy,’ he said. ‘If the price goes down our clients lose value. With nil cost options there is no loss for the recipients; they make a profit come what may.’

Slater said share options should ‘never’ be granted with ‘exercise prices at less than market price’.

Voting on Remuneration Reports

In order to turn his proposals into action, Slater said his fund group would vote against Remuneration Reports of longer than two pages and any new scheme involving nil cost options, and reserve the right to vote against ‘unresponsive members of remuneration committees being re-elected’.

Overly complex and long Remuneration Reports are often a barrier for individual shareholders to comprehend what remuneration their Directors are getting. Eg the Rio Tinto Remuneration Report is 28 pages, Future Group’s Remuneration Report is 25 pages and BT’s is 25 pages long.

The worst company to invest in is where the Directors act and talk as if the company is theirs rather than owned by their shareholders. This will likely manifest itself in their approach to remuneration. ShareSoc encourages individual shareholders to vote against Remuneration Reports if they feel they are not fair and reasonable and based on good performance.

ShareSoc’s 5 Pillars of Good Remuneration

  • Performance Linkage: There should be a demonstrable linkage between historic pay and performance (shown by 10- year TSR graph, Single Figure Remuneration and % of maximum pay-outs from bonus and options/long term variable pay).
  • Pay Level: Remuneration (salary, equity incentives, bonus and benefits) should be demonstrably reasonable. This is measured in terms of:
  • £ amount.
  • % share of revenue, profits, cash flow, market cap, % of increase in market cap, dilution, etc.
  • Share Ownership: Management should own and retain significant amounts of shares in their company.
  • Clarity and Transparency. Remuneration policies should be clear and easily understandable by investors.
  • Good Remuneration Governance – independence, consultation, disclosure, voting and sound business practices.


In summary, for AIM and FTSE Small Cap Directors and particularly Chairs of RemComs we encourage you to take into account the increasing interest from your shareholders both institutional and individual in how you remunerate your Directors and ensure that it is reasonable and based on good performance.

For shareholders please read the Remuneration Reports of the companies you invest in. If they are overly complex and you don’t understand them, we urge you to ask the company to explain. If your feel the Director’s Remuneration is unreasonable (particularly with regard to nil paid share options) and not related to performance, we encourage you to vote against the Remuneration Report and if you can, to attend the AGM and make your views heard.

ShareSoc remuneration guidelines. Our Guidelines are consistent with the principles of the Quoted Company Alliance (QCA) Code.

Success Stories