Directors’ remuneration for quoted companies - reform is coming
The Business Secretary, Vince Cable, has recently published some comprehensive reforms on the topic of directors’ pay.; The idea that the Government has is to get shareholders more engaged with companies looking at what directors are paid and why they are paid, and trying to get some transparency between the performance of individuals and the results of the company. Shareholders will now be able to make a binding vote on whether they approve the remuneration packages and that will be an annual vote. There is an exception which is if a company doesn’t change its pay policy you are allowed to carry over and there won’t need to be an annual vote, but there is a back-stop of one vote at least every three years.
On the disclosure front what the reforms propose is that companies will have to give information on each individual and give you the total of what they have earned in the year, so that will be salary, benefits, pensions, long-term performance awards and so on. And there’s also a requirement to explain whether management have met their performance conditions in terms of getting their payouts, and how the performance of the business has compared with the performance of the chief executive and what he is being paid - to try and bring some more transparency and clarity into what companies earn and their top management earn as well.
Though the reforms are out at the moment the Government’s intention is to have all of this finished and in process such that it will be applied from October 2013.
Business Secretary Vince Cable has announced the most comprehensive reforms of the framework for directors’ remuneration in a decade. The government aims to empower shareholders to engage effectively with companies on directors’ pay by:
- giving shareholders binding votes on pay policy and exit payments, so they can hold companies to account and prevent rewards for failure; and
- boosting transparency so that what people are paid is easily understood, and the link between pay and performance is clearly drawn.
The binding vote on pay policy will be held annually unless management chooses to leave its remuneration policy unchanged; in which case, it will be compulsory at least every three years.
Management will have to report a single figure for the total pay that each director received for the year. This figure will cover all rewards received by the director, including bonuses and long-term incentives.
Companies will also have to report details of whether they met performance measures and a comparison between company performance and chief executives’ pay.
The Government issued a consultation paper on the proposed revisions to the remuneration reporting regulations in June; it intends all these reforms to be enacted by October 2013.