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New directors’ remuneration report regulations laid before Parliament

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26 Jun 2013

New directors’ remuneration report regulations issued by the United Kingdom Department for Business, Innovation and Skills (BIS) have now been finalised and laid before the UK Parliament for approval. The regulations, which apply for quoted companies, completely change the requirements for the contents of the directors’ remuneration report and include some significant new disclosures, particularly a ‘single figure’ for the remuneration of each director. They come into effect for periods ending on or after 30 September 2013.

Under the regulations (link to draft regulations) and related changes to the Companies Act 2006:

  • The directors’ remuneration report will be split into a policy report (not subject to audit) and an annual report on remuneration (some elements of which are subject to audit).  The directors’ remuneration report will also include an annual statement from the chairman of the remuneration committee which should summarise the major decisions on directors’ remuneration and substantial changes made to directors’ remuneration in the year;
  • The policy report will include details of the remuneration policy.  The regulations introduce new disclosures including the policy on recruitment, the policy on loss of office payments, scenario charts which show the level of remuneration each director may receive under different performance scenarios, a statement of how employment conditions elsewhere in the company have been taken into account and a statement of whether, and if so how, the views of shareholders have been taken into account.  The policy report will be subject to a binding shareholder vote which must take place in the first financial year beginning on or after 1 October 2013.  Once the binding policy is in force, all future remuneration and loss of office payments must be consistent with it and all directors will be liable if the company breaches this policy.  After the first vote, shareholders must vote on pay policy every three years or sooner if the company wants to make changes to the policy;
  • The annual report on remuneration must provide details on remuneration in the period and some information for the following year and will be subject to an annual advisory shareholder vote; and
  • The contents of the annual report on remuneration are substantially different from existing requirements and include a ‘single figure’ for each director and a number of new requirements such as an explanation of the link between pay and performance and payments for loss of office.  This ‘single figure’ must include all elements of remuneration including salaries, fees, benefits, bonuses, share schemes and pension benefits. 

The regulations are based on proposals published in June 2012 by BIS.  They have been developed in order to give shareholders more power through binding votes, so they can hold companies and directors to account and to boost transparency so that what people are paid is more clearly and easily understood. 

Click for:

BIS press release (link to BIS website)

Regulations laid before parliament (link to draft regulations)

Deloitte ‘Need to Know’ on the new directors’ remuneration report regulations

Deloitte 'Governance in brief' newsletter on the new directors' remuneration report regulations.


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