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'
- 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
Regulations are expected to be approved by
Parliament in the current session.
For further information, please contact:
Simon Jeffreys, Employment partner
Phone: +44 (0)20 7367 3421
Andrew Crawford, Corporate partner
Phone: +44 (0)20 7367 2867
*Kate Kelleher, Employee Benefits partner
Phone: +44 (0)20 7367 2860
(*away on sabbatical until 30 September 2002)