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Shareholders gain vote on boardroom pay

EXECUTIVE PAY

Shareholders gain vote on boardroom pay

The long-awaited legislation giving shareholders an annual vote on directors' remuneration packages finally went before Parliament on 25 June 2002.

Quoted companies will be required to table a resolution each year on the directors' remuneration report. But the vote will be only "advisory" and the company will not be required to act on it.

Patricia Hewitt, trade and industry secretary, said the legislation will bring "greater transparency" to the process of deciding boardroom pay, and linking executive salaries to performance.

Boardroom pay: the key changes

  • Quoted companies must publish a report on directors' pay as part of their annual reporting cycle, which must be approved by the board of directors.
  • Companies must hold a shareholder vote on the report at each Annual General Meeting.

The reports on directors' pay must include:

  • Details of individual directors' pay packages and justification for any compensation packages given in the preceding year.
  • 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 the company policy on directors' pay, including details on incentive and share option schemes an explanation of how packages relate to performance details and explanation of policy on contract and notice periods.
  • A performance graph providing information on the company's performance in comparison with an appropriate share market index.

A final word

"Top-class pay for the best performers is something we support. But there can be little doubt that some company directors have received lavish pay awards in circumstances when they aren't deserved. We share the view of many shareholders and employees that this is unacceptable and has to change, and it's important that shareholders should be able to express their views about remuneration packages.

The regulations going before Parliament today are the result of extensive consultation with business and employment organisations. Once law, these regulations will mean that all quoted companies will hold annual shareholder votes on directors' pay, and have to justify how salaries are linked with performance." - Patricia Hewitt, trade and industry secretary.

Want to know more?

The Regulations are due to become law before the end of the current parliamentary session and will apply to quoted companies with financial years ending on or after 31 December 2002. The regulations will amend the Companies Act 1985.

Consultation on the draft regulations closed on 15 March. Copies of the consultation are available at www.dti.gov.uk/cld/published.htm. A summary of responses will be available on the DTI website in due course.

For more details contact the Department of Trade and Industry, tel: 020 7215 5000, or visit www.dti.gov.uk.

To read the DTI press release online click here.

Posted 8 July 2002