In the UK, the recently enacted Enterprise and Regulatory Reform Act 2013 (the Act) introduced a number of changes to the legal framework for remuneration of directors of quoted companies. These provisions come into effect on 1 October 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.
In a related development, on 12 August 2013, the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 were published. As required by the Act, these Regulations (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 will also come into effect on 1 October 2013 and apply to annual reports and accounts prepared in respect of a company's financial year ending on or after 30 September 2013.