Final proposals on directors’ remuneration legislation published

The Department of Business, Innovation and Skills (Bis) has proposed reforms to board pay disclosure and shareholder voting rights.

The finalised legislation apply from 1 October 2013.

The regulations are still subject to parliamentary approval, but are not expected to change.

Its proposals include:

  • Recruitment policy: It will no be longer necessary for employers to set out a maximum potential value for salary or other fixed pay. A maximum should be set out for variable pay (bonuses and awards) but it may be expressed as a multiple of salary or in monetary terms (or in any other way the organisation decides). There will also be no need to include a maximum in describing policy on buy-out awards.
  • Maximum potential value: There will be a maximum potential value for each element of pay described in the remuneration policy requirement, but the maximum may now be expressed as a percentage of salary, in monetary terms or in some other way, so some flexibility has been built in. It will now also be necessary to describe the minimum amount payable for achieving threshold performance and higher levels of performance, but this will also have similar flexibility.
  • Single-figure table: Employers will be able to include additional information (columns and notes) both in relation to the required information on salary, benefits, pensions and variable remuneration and any other information which they consider will aid understanding of the table.
  • Payments to former directors: There will be new express exclusions for payments that are not of significant economic value, pensions, and payments for other services given to the organisation.
  • Termination payments: This has been clarified to eliminate overlap of disclosure under this heading and under payments to former directors, particularly in relation to deferred payments. Moreover, payments that are not of significant economic value need not be disclosed.
  • Directors’ shareholdings: Employers will need to set out each director’s interests in shares, including those of connected persons. There will also be a specific requirement to disclose interests under any long-term incentive plans showing separately those which are subject to performance conditions. Details of vested and unexercised share options and options exercised during the year must also be shown.
  • Implementing the remuneration policy: The report will have to include a statement showing how the organisation intends to implement its disclosed policy in the coming financial year. It should set out details of how awards are calculated and performance conditions, and any implementation changes from a previously approved policy.
  • Policy on employees’ pay: Employers will have to describe any difference in the organisation’s policy on directors’ pay and employees’ pay generally.

Rory Cray, a partner at Fit Remuneration Consultants, said: “We welcome the final version of the new rules.

“In particular, employers will be relieved that their input on the level of disclosure of annual bonus targets has been listened to.”