The Enterprise and Regulatory Reform Act 2013, which received the Royal Assent on 25 April 2013, was published on 2 May 2013 and introduces the new, much-publicised, regime to give shareholders a binding vote on the remuneration of directors of quoted companies. In terms of timing for the implementation of the new regime, it is currently anticipated that the first directors’ remuneration report to be affected by the changes will be the report published during the company’s first financial year beginning on or after 1 October 2013.
Major changes made by the new regime include the following:
- The directors’ remuneration report must include a new, separate, section containing details of the company’s forward-looking remuneration policy.
- The remuneration policy must be approved by an ordinary resolution of the company’s shareholders at least every three years.
- No payment for remuneration or loss of office may be made by the company to a director unless the payment conforms to the most recently approved remuneration policy or has been specifically approved by the company’s shareholders.
- Any directors who authorise the company to make a payment to a director that does not conform with approved policy will be potentially liable for any loss suffered by the company.
Under the new system, the remuneration report will continue to include a backward-looking implementation report which will remain subject to an annual advisory vote by shareholders.
Draft regulations1, due to be put before Parliament shortly, contain details of the proposed form and content of the directors’ remuneration report with a view to improving standards of remuneration reporting.
We will bring you more news when the regulations have been finalised and the implementation date for the new regime confirmed. It will be of the utmost importance for companies to ensure that all necessary steps are taken for the first binding vote to be passed so that a workable policy within which the company can operate is put in place at the earliest opportunity.
Enterprise and Regulatory Reform Act 2013 available at: http://www.legislation.gov.uk/ukpga/2013/24/contents/enacted (sections 79-82 refer to the new executive remuneration regime).