BIS analysis - responses to new directors' remuneration reporting requirements

The Department for Business, Innovation and Skills (BIS) has published a paper examining how companies and shareholders have responded to new requirements on the reporting and governance of directors’ remuneration introduced in the Large and Medium-Sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 (“the Regulations”).

The regulations, which apply to quoted companies and were approved in August 2013 (effective for periods ending on or after 30 September 2013), changed the requirements for the content of directors’ remuneration reports, adding some significant new disclosures including a ‘single figure’ for the remuneration of each director.

BIS examined the level of compliance with the Regulations among a randomly selected sample of UK incorporated companies listed on the London Stock Exchange. A total of 93 companies were selected; 38 companies with more than 20,000 employees (group 1), 38 companies with fewer than 20,000 employees (group 2), and 17 companies meeting the EU definition of small or medium-sized enterprises (SMEs) (group 3).

The remuneration reports and remuneration policy sections of the companies’ Directors’ Remuneration Reports were examined against 19 questions and were compliance assessed on a pass/fail basis. BIS found that those companies assessed had complied with the majority of the requirements in the regulations. The paper notes that there had been 100% compliance with eight of the 19 questions assessed, while there had been a very high level of compliance with a further seven of the questions.

BIS states that the four remaining questions, covering requirements to provide details of pension entitlements, information on payments to past directors, information on payments for loss of office and future salary policy, all showed more notable levels of non-compliance.

The paper highlights that the first three of these disclosures are subject to audit and concludes that a lack of explicit disclosure was likely to be as a result of there being no such information to disclose. The paper notes that in such instances, a positive confirmation that no such information can be disclosed would be helpful.

The paper states that there had been a significant level of non-compliance in respect of the requirement to specify clearly, in monetary terms or otherwise, the maximum future salary that may be paid under the remuneration policy.

The paper highlights that there may have been confusion between the guidance that invites companies to describe the considerations the remuneration committee will take into account, for increasing salaries during the remuneration policy period and the requirement that the maximum must be explained.

The paper suggests that the guidance in this area could be amended to ensure that the maximum amount must be explained irrespective of additional disclosure of any considerations the remuneration committee takes into account, in determining proposed increases during the policy period.

The paper examines shareholder voting from the 2014 AGM season for both the remuneration policy and remuneration report votes, including both turnout and dissent levels.  The paper also includes analysis recent developments in the structure and levels of directors’ remuneration.

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