On 1 October in the UK, the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013, the directors' remuneration provisions of the Enterprise and Regulatory Reform Act 2013 and Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013 were enacted.
These provisions bring the so-called "Say on Pay" legislation into effect in the UK.
- Enterprise and Regulatory Reform Act 2013
Under the Act, quoted companies must have a directors' remuneration policy which must be approved by shareholders by ordinary resolution at least every three years. In addition, all payments made to directors must be consistent with the policy or if not, must be approved by shareholders. The directors’ remuneration report must also include a separate, forward looking remuneration policy section.
- The Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013
The Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 (a) prescribe the requirements of the annual remuneration report and (b) set out for the first time, the minimum requirements of the directors' remuneration policy.
The Regulations require that companies disclose the amount each director has been paid and this must be expressed as a single figure taking account of all elements of remuneration. In addition, companies must explain the director's actual performance and the basis upon which it has made decisions on the level of variable pay that is received. The remuneration policy must explain how each element of a directors' remuneration package supports the short and long-term strategy of the company, its potential value and any performance measures relating to it. These disclosures are intended to inform the new voting powers introduced by the Act.
The Regulations do not apply to small businesses. They apply to annual reports and accounts prepared in respect of a company's financial year ending on or after 30 September 2013.
- The Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013
The Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013 require certain companies to prepare a stand-alone strategic report as part of their annual report. In August 2013, the FRC published a consultation paper setting out draft guidance on the application of the strategic report requirements. The FRC is currently preparing the non-binding guidance on the strategic report requirements, which it hopes will act as a catalyst for entities to prepare more concise and relevant narrative reports. The guidance is intended to encourage preparers to consider how the strategic report fits with the annual report as a whole and to enhance the quality of narrative reporting.
Feedback on the draft guidance is expected by 15 November 2013.