New regulations on reporting directors' pay

On 25 June, Trade and Industry Secretary Patricia Hewitt announced that the Government would be bringing in new laws to give shareholders of quoted companies an annual advisory only vote on their directors' pay.

According to Ms Hewitt, they will bring greater transparency to the process of deciding boardroom pay and greater linkage to performance. The avowed aim is to stop directors receiving lavish pay awards, which aren't deserved, by forcing companies to justify packages.

The key changes proposed are:-

• quoted companies must publish a report on directors' pay as part of their annual reporting cycle. It must be approved by the Board and a copy must be filed with the Registrar of Companies
• quoted companies must hold a shareholder vote on the report at the relevant AGM.

The new laws, in the form of regulations, will come into force for company reporting years ending 31 December 2002 or later, as originally proposed in the Government's consultation exercise, which closed on 15 March.

Checklist for the required content of directors' pay reports:

• details of individual directors' pay packages and justification for any severance packages
• details of the Board's consideration of directors pay
• membership of the remuneration committee
• names of any remuneration consultants used, whether they were appointed independently and whether they provide any other services to the company
• a forward looking statement of company policy on directors' pay, including details on incentive and share option schemes, an explanation of their relationship to performance, and details and explanation of policy on service contracts and notice periods
• a performance graph providing information on the company's share price performance against an appropriate stock market index

Regulations are expected to be approved by Parliament in the current session.

For further information, please contact:

Simon Jeffreys, Employment partner
Email: [email protected]
Phone: +44 (0)20 7367 3421

Andrew Crawford, Corporate partner
Email: [email protected]
Phone: +44 (0)20 7367 2867

*Kate Kelleher, Employee Benefits partner
Email: [email protected]
Phone: +44 (0)20 7367 2860

(*away on sabbatical until 30 September 2002)