Further to our article last month on the detail contained in the Enterprise and Regulatory Reform Bill, we consider below new clauses on executive pay for quoted companies.
On 28 June 2012, Parliament published new clauses to the Bill, which will amend the Companies Act 2006, as part of the Government’s proposals to reform the disclosure and governance of directors’ remuneration in quoted companies. The changes include:
- new requirements for directors’ remuneration policies, including payments for loss of office, in quoted companies;
- a binding vote on future remuneration policy at least every three years;
remuneration payments and payments for loss of office to be consistent with the remuneration policy, or specifically approved by shareholders in general meeting. If not:
- any obligation to make a non-compliant payment has no effect;
- any non-compliant payment will be held by the recipient in trust for the company or payer;
- the directors who authorised the payment will be jointly and severally liable to indemnify the paying company for loss;
- companies will be required to publish their remuneration policy (and revised remuneration policy) on their website, together with details of payments made to departing directors;
the provisions will not apply:
- to payments made under obligations arising before 27 June 2012 (unless the agreement is renewed or modified on or after that date);
- until the earlier of the adoption of the first directors’ remuneration policy under the amended Companies Act and the end of the company’s first financial year after the enactment of the Bill.
At present, the definition of “remuneration payment” seems to relate only to payments in consideration of becoming a director. It seems likely that this will be widened before enactment to make it clear that it also covers remuneration for holding employment. Also, it is unclear how the new provisions will apply to share awards that vest after termination, share options exercised after termination and deferred bonuses relating to bonus periods ending before termination. It is intended that the provisions will come into force on 1 October 2013. On 28 June 2012, BIS published a consultation on regulations setting out how companies must report directors’ remuneration under the revised framework