The government is to introduce new regulations designed curb excessive executive pay by requiring companies to provide clearer details on directors' remuneration.
The changes to the pay reporting regulations for listed companies will come into force from 1 October 2013.They will require companies to provide a pay policy, which will be subject to a legally binding vote by shareholders. This must be accompanied by an illustration of the level of awards that could pay out for various levels of performance, to ensure that pay information is presented in a more understandable format.
The new rules also require that all elements of director's pay are reported in a single, cumulative figure. The regulations define how this should be calculated so that all companies are consistent in their approach. There will be improved disclosure on the performance conditions used to assess variable pay of directors.
Business minister Jo Swinson said the aim of the legislation was to give shareholders of around 900 main market companies 'the clear information and robust tools they need to take action'.
'For too long the pay of some directors has been out of sync with the performance of their company. While we have started to see shareholders become more engaged, with last year's "shareholder spring" a prime example, previously when they raised their voices with concerns they were not always listened to. This is why we made a number of reforms,' Swinson said.
Stephen Cahill, partner in the remuneration team at Deloitte, said there had been significant changes to the proposals since the first draft was released in July 2012. As a result, companies will no longer be required to disclose targets and measures that are commercially sensitive, while termination payments that are over their annual salary will not need shareholder approval.
'Companies and their shareholders will be relieved that the regulations have been amended so that companies can continue to incentivise their executive team to achieve certain goals which is some cases cannot be communicated to the public for commercial sensitive reasons. I think it is important to strike a balance between transparency and operating in a competitive environment,' Cahill said.
