The Enterprise and Regulatory Reform Act 2013 (ERRA) received Royal Assent on 25 April 2013. ERRA, among other matters, contains the new legal framework for the remuneration of directors of quoted companies and the legislation to establish the Competition and Markets Authority, which brings the competition functions of the Competition Commission and the Office of Fair Trading together.
The final provisions in relation to directors' remuneration have not changed since they appeared in the last version of the Bill and we reported in detail on these in our newsletter last month, please click here to see the article. The provisions have been renumbered, however, and are now in sections 79 to 83 of ERRA.
In brief, the new framework requires the directors' report of a quoted company (a company registered in the UK and with equity listed on the main market in London (but not AIM), officially listed in an EEA State or admitted to dealing on the New York Stock Exchange or Nasdaq) to consist of:
- a forward looking remuneration policy which must set out a company's approach to every element of directors' remuneration, including recruitment and loss of office payments. This policy must be approved by ordinary resolution every three years or more frequently if a company wishes to change the policy
- an implementation report which records how the remuneration policy has been implemented in the relevant financial year, including a single figure for the total pay received by a director. This report will be subject to an annual advisory vote of shareholders. If the advisory vote is not passed in a year when the remuneration policy is not put to a binding vote, a company must put the remuneration policy to a binding vote in the next financial year
- loss of office payments may only be made if they are consistent with the remuneration policy and a company must put out a statement as soon as possible after a director leaves office setting out the payments received or to be received by that director
- payments made which are inconsistent with the remuneration policy will be held on trust by the recipient for the company. The directors who authorise any such payments will be liable to the company for any loss suffered unless they can demonstrate that they acted honestly and reasonably.
Sections 79 to 82 are expected to come into force on 1 October this year and to apply for financial years beginning on or after that date. This will be confirmed by statutory instrument in due course.
The form which the directors' remuneration report must take is set out in the draft Large and Medium-sized Companies and Groups (Account and Reports) (Amendment) Regulations 2013. These have not yet been laid before Parliament but this is expected to happen soon. We reported on the latest draft of these regulations in last month's newsletter (see link above).
The Department of Business, Skills and Innovation has published some Frequently Asked Questions which provide a helpful guide to what the changes to directors' remuneration reporting will mean in practice and these can be found here.
Competition and Markets Authority
We reported in detail on the proposals to create the Competition and Markets Authority in an article in May last year. We will report further on the provisions and the implications for competition law in the UK in our next edition.
The ERRA is available here.