On 24 June, the Department of Business, Innovation and Skills (BIS) published the final version of the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2012 (Directors' Remuneration Regulations). The changes to the directors' remuneration report of a quoted company are scheduled to come into force for financial years beginning on or after 1 October 2013. This article looks at the changes made since the last version of the Directors' Remuneration Regulations was published in March and the recent BIS FAQs designed to help stakeholders understand how the changes will affect them.

For financial years beginning on or after 1 October 2013 the directors' remuneration report for a quoted company will need to consist of:

  • a statement by the chair of the remuneration committee,
  • the company's policy on directors' remuneration (remuneration policy), and
  • information on how the remuneration policy was implemented in the relevant financial year (implementation report).

A quoted company for these purposes means 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.

The remuneration policy must set out the company's approach to every element of directors' remuneration, including recruitment and loss of office payments. Shareholders will have a binding vote on a resolution to approve the directors' remuneration policy and companies will have to seek shareholder approval at least every three years, or more frequently if a company wishes to change the policy.

The implementation report will set out how the remuneration policy has been implemented in the relevant financial year, including a requirement to include a single figure for the total pay received by a director in that year. Shareholders will have an annual advisory vote on a resolution to approve the implementation report. If the implementation report is not approved in a year when the remuneration policy has not been put to a binding vote, the company must seek shareholder approval for its remuneration policy in the following financial year.

A statement will have to be published as soon as possible if a director leaves office, setting out payments the director has received or will receive in the future.

For the annual general meeting held in the first financial year to begin on or after 1 October 2013 companies will need to produce a directors’ remuneration report in the new format. For the majority of companies this will mean AGMs held in the Spring/Summer of 2014. Both the remuneration policy and the implementation report must be put to shareholders for approval. All companies must have successfully sought approval for a remuneration policy by no later than the start of the second financial year to begin after 1 October 2013 (so by 1 January 2015 for a company with a December year end) and from that date all remuneration and loss of office payments must be consistent with the approved policy or approved by separate shareholder resolution.

Final Remuneration Regulations published

The final version of the Directors' Remuneration Regulations include a number of minor drafting amendments. There are also some more substantive changes that have been included. Some points to note are that:

  • the directors' remuneration report must contain a statement as to how the company intends to implement the approved remuneration policy in the following financial year to the extent that such information is not included elsewhere in the remuneration policy. After the first year of the new policy, the statement must also detail any changes to the manner of implementation compared to the previous year,
  • the remuneration policy must set out the extent of any discretion available to the directors under the policy in respect of any variation to the policy,
  • the requirement to state the maximum total salary for a new director (as a percentage of the salary of the highest paid director) has been removed. It is now only necessary to set out the maximum level of variable remuneration which may be granted by the company,
  • the requirement to disclose the maximum percentage of the face value of long term incentive scheme awards that could be received by directors has been removed. The face value of awards must still be disclosed but the definition has changed – details of how the face value has been calculated must be included in the report,
  • companies are now required to disclose guidelines on directors' holdings of shares, as well as disclosing any requirements for directors to hold shares in the (company a distinction must be made between shares and share options, and between any interests in shares with or without performance conditions),
  • the single total remuneration figure table must include the cash value of all payments in lieu, whether the payment was in cash or otherwise, alongside any benefits from participating in pension schemes, and
  • the columns used within the singe total remuneration table may be reordered in order to allow companies to use sub-totals.

The final version of the Directors' Remuneration Regulations was laid before Parliament on 24 June and, subject to approval, will come into force on 1 October 2013. Click here to see the Regulations.

BIS FAQs on directors' remuneration reforms

BIS published a set of Frequently Asked Questions in March 2013 designed to help stakeholders understand how and when they will be affected by the reforms. The FAQs provide a helpful guide to what the changes will mean in practice and cover the following areas:

  • the scope of the new framework,
  • when companies need to comply with the new regime,
  • more detail on the voting procedures described briefly above,
  • remuneration reports – what should go in them and when,
  • the restrictions on remuneration payments,
  • the restrictions on loss of office payments,
  • the impact on existing contracts and other legal arrangements, and
  • what happens if unauthorised payments are made.

The FAQs have not been updated in light of the publication of the final regulations. BIS has, however, recently announced that the GC100 is working alongside stakeholders to produce relevant guidance on the final version of the Directors' Remuneration Regulations. This is expected to be published in September 2013.