Likely changes to the Listing Rules requirements for remuneration reports

The FCA is proposing to remove almost all of the Listing Rules requirements or remuneration reports for UK incorporated companies so as to prevent duplication with the now imminent BIS director pay changes. However, it is not proposing to make any changes to the relevant Listing Rules requirements for overseas incorporated companies, which will continue to have few express requirements on director pay.

Background

Remuneration reporting for listed companies is a mixture of compliance with UK company law requirements and compliance with the Listing Rules.

The Listing Rules have since the mid-90s contained information requirements for remuneration reports of listed UK incorporated companies (the vast majority of companies on the main market). These were never updated when UK company law was changed in 2002 to provide for a compulsory annual directors’ remuneration report and shareholder vote. In order to comply with their corporate governance obligations in relation to remuneration reports, these companies have therefore had to look at two sets of rules. In practice, it has been UK company law that has taken precedence, as the provisions are much more extensive and are linked to the core annual vote on remuneration, which has often become a key feature of AGMs over the last decade.

There has, in contrast, been a much more relaxed regime for listed companies which are incorporated overseas, because the Listing Rules have never been extended to require the same level of information as for UK companies and there has generally been no local equivalent of the prescriptive UK company law requirements for directors’ pay, or other corporate governance rules.

Proposals for UK companies

The BIS directors’ remuneration reforms which take effect on 1 October 2013 (please click here to see our earlier law-now on this subject) only apply to UK incorporated companies. They make the gap between UK company law and the Listing Rules even starker and there is now very little reason for retaining the Listing Rules requirements for remuneration reports for UK listed companies.

So it is no surprise that, although it is still consulting on this formally, the FCA proposes that the Listing Rule provisions on the contents of remuneration reports should now completely fall away for UK listed companies. There is one exception. This is the requirement for remuneration reports to set out the unexpired terms of directors’ contracts for directors seeking election or re-election (which also applies to listed companies which are overseas companies).

One disappointment, though, is a timing mismatch between these and the BIS reforms. With the Listing Rules changes due to come into effect for companies with financial years ending on or after 1 January 2014, companies with 30 September 2013 and 31 December 2013 year ends, for example, will still have to report under two sets of rules: the old Listing Rules and the new company law regime. This is disappointing, because there seems little reason for the Listing Rules changes not to take effect as soon as possible so as to take effect for all annual reports produced under the new company law regime.

Proposals for overseas companies

The FCA has proposed no change to the rules for the remuneration reports for those listed companies which are overseas companies.

This will be greeted with some relief as, although many overseas companies voluntarily accept UK standards of reporting already, there was some fear that remuneration-reporting in overseas companies would be forced to rise to the standards of UK companies for the sake of the integrity of the London market and to avoid shareholder complaints about the unequal standard of disclosure.

To access the Consultation Paper, please click here.