All companies (except those that are small from 1 January 2016 onwards) are required to make certain disclosures about the aggregate remuneration of the directors. Quoted companies are subject to considerably more onerous requirements involving preparation of a directors’ remuneration report including detailed information about each director’s remuneration. These requirements changed substantially for years ending on or after 30 September 2013.
A quoted company is defined in section 385 of the 2006 Act. It is a company whose equity share capital is listed in the UK or another EEA state or is admitted to dealing on either the New York Stock Exchange or NASDAQ. AIM companies and companies which have only debt or non-equity share capital listed do not, therefore, fall within the scope of the requirement to prepare a directors’ remuneration report.
A key aspect of the Directors' Remuneration report is the ‘single figure’ for the remuneration of each director which includes a value placed on share-based payments and pension benefits using calculations prescribed in the regulations.
The directors’ remuneration report for a quoted company is split into two parts. In addition to the part dealing with historical remuneration (commonly known as the annual remuneration report), there is a ‘policy report’. This is subject to a binding shareholder vote and a company will be in breach of the law if it pays remuneration to directors outside of the approved policy. The policy report has to be put to a shareholder vote at least every three years.
For periods ending on or after 30 September 2013, the requirements of the Listing Rules for the contents of a directors’ remuneration report have been almost entirely withdrawn. The only remaining provision requires the disclosure of the unexpired term of any director’s service contract where that director is proposed for election or re-election at the forthcoming annual general meeting.
In September 2014, the UK Corporate Governance Code was updated. The September 2014 amendments emphasise that the overall objective of the remuneration policy should be to deliver long-term benefit to the company, supported by a requirement to avoid paying more than necessary. A specific reference to recovering or withholding performance-related payments, also know as 'clawback', is also included.
GC 100 guidance
In September 2013, the GC100 and Investor Group published guidance to assist directors of listed companies to apply the directors’ remuneration reporting requirements under the new rules. This was updated in October 2013 to include minor amendments including a clarification of when the new requirements are applicable from. A further statement from the Group was published in December 2014 but this contained only minor clarifications.