With pressure mounting for employers to improve transparency around executive pay and for shareholders to have more say on pay, new legislation is being introduced that will change disclosure requirements.
The Enterprise and Regulatory Reform Bill, now passing through Parliament, includes a requirement for quoted UK companies to produce a new forward-looking remuneration policy report and a backward-looking implementation report.
The forward-looking report will set out the key elements of an employer’s policy on remuneration, including performance measures used, and the principles on which termination payments are made.
Organisations must seek shareholder approval for their policy report every three years, or earlier if the employer is changing its policy, or its policy report was voted down in the previous year. Once a report is approved, an organisation can only make payments that comply with its policy.
The backward-looking implementation report will set out how the remuneration policy has been applied over the past year.
Information to be included will be similar to that currently required for a remuneration report. The implementation report must also contain a single figure for the total remuneration received by each director.
Shareholder approval will be needed for the implementation report each year.
The revised regime will apply to quoted UK companies for reporting years beginning on, or after, 1 October 2013. The final legislation and regulations are expected to be available in the spring.
Barbara Allen is corporate partner at Stephenson Harwood