Disclosure and approval of directors’ remuneration policy
Following the recent publication of the Enterprise and Regulatory Reform Act 2013 (Commencement No. 3, Transitional Provisions and Savings) Order 2013, sections 79 to 82 of the Enterprise and Regulatory Reform Act 2013 (“ERRA”) will come into force on 1 October 2013.
These sections of the ERRA make amendments to the Companies Act 2006 (“CA 2006”) and relate to the disclosure and approval of remuneration for directors of quoted companies.
The key new/amended provisions of the CA 2006 are as follows:
- Amended section 421 CA 2006 - the directors' remuneration report must include a separate section on forward-looking policy, the content requirements of which will be set out in separate regulations (see the 2013 Regulations described below) (section 79, ERRA 2013).
- New section 422A CA 2006 - revisions to directors' remuneration policy (section 79, ERRA 2013).
- New section 439A CA 2006 - requiring a binding shareholder approval of the directors' remuneration policy by ordinary resolution (at least every 3 years) (section 79, ERRA 2013). New sections 226A to 226F CA 2006 - dealing with restrictions on payments to directors and remuneration payments for loss of office (section 80, ERRA 2013). The company is prohibited from making a remuneration or loss of office payment to a current, former or future director, unless it is consistent with the most recently approved remuneration policy. Payments made that are inconsistent with an approved policy are subject to trust arrangements, can be recovered and responsible directors are liable to jointly and severally indemnify the company against any loss resulting from the payment.
- Minor amendments to sections 180, 190, 215, 430 and 440 CA 2006 (section 81, ERRA 2013).
- Transitional provisions on payments to directors (section 82, ERRA 2013).
- New section 226A CA 2006 – new definitions including "directors’ remuneration policy" (section 80, ERRA 2013). The non-policy part of the directors' remuneration report will continue to be subject to an annual advisory vote.
The non-policy part of the directors' remuneration report will continue to be subject to an annual advisory vote.
Contents of the directors’ remuneration report
Also on 1 October The Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 (SI 2013/1981) (“2013 Regulations”) come into force and are effective for financial years ending on or after 30 September 2013.
Under the 2013 Regulations the directors' remuneration report comprises two distinct parts:
- A future remuneration policy report, which will be required when a shareholder binding vote is proposed, at least every 3 years. Once the policy is approved, the company will only be able to make payments within the limits it allows.
- An implementation report, on how the policy was implemented in the past financial year, setting out actual payments to directors and details of the link between company performance and pay. This report will be required annually and will be subject to an advisory vote.
The Schedule to the 2013 Regulations will apply to all quoted companies and will revoke and replace Schedule 8 of The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 which sets out the content requirements for the directors' remuneration report.
Private members’ bill
On 6 September 2013, the Executive Pay and Remuneration Bill 2013-2014 was published following its presentation in the House of Commons as a Private Members' Bill. The Bill proposes that:
- At least one place on the remuneration committee of a public company must be reserved for a person representative of the employees of that company. The company may determine whether such person will have a vote on the committee.
- All public companies limited by shares must, at each annual general meeting, hold a binding shareholder vote (requiring shareholders holding at least 75% of the shares in the company to vote in favour) on the remuneration of its executive directors.
This Bill is expected to have its second reading debate on 13 September 2013. As a Private Members' Bill, the Bill is unlikely to be passed into law.
To view The Enterprise and Regulatory Reform Act 2013 (Commencement No. 3, Transitional Provisions and Savings) Order 2013:
To view The Enterprise and Regulatory Reform Act 2013:
To view the 2013 Regulations:
To view the private members’ bill: