SUMMARY
We consider that the revised draft is an improvement on the previous draft and appears to have benefitted in particular from the work carried out by the Financial Reporting Lab. In particular we are pleased that the requirements for the remuneration report, while very detailed, avoid excessive prescription. The changes made to certain features of the structure and presentation of the regulations also make them more logical to follow.
We recommend, however, that further consideration be given to mandating disclosure of any sums clawed back, and to requiring the disclosure, in the performance graph, of aggregate executive directors’ pay as opposed to only that of the CEO.
SPECIFIC COMMENTS
Paragraphs 4 and 5: Disclosure of remuneration by individual directors
We support the proposed form of the disclosure table, which appears to be clear and straightforward, and welcome the inclusion of an additional provision for directors to disclose any other information which the directors consider will aid understanding of the data.
Para 7: Sums to be included in the disclosure table
We welcome the inclusion of a provision for the separate disclosure of any amounts previously reported as paid to directors that have been reduced or clawed back in the reporting year. It appears, however, that disclosure of any such actions undertaken is only optional at the discretion of the directors, and that they may, if they choose, decide not to disclose them. We consider that whenever any such action is taken, shareholders are entitled to be informed about them. We recommend therefore that the discretion not to disclose be removed from paras 7(3) and (4).
Paragraph 10(4): Definitions
The reference to paragraph 7(3) should be to paragraph 10(3).
Paragraph 14: Variable pay
We welcome the decision to include a definition in the revised draft of ‘face value’, in connection with interests awarded to directors during the year.
Paragraph 16: Statement of performance targets
The reference to paragraph 25(3) should be to paragraph 27(3).
There is missing text before the words ‘the details of’
Paragraph 19(9)
Overall, we support the changes which have been made in respect of performance reporting (Para 19). However, we remarked at the time of the previous consultation on this matter, that it is only being proposed that a comparator figure be provided in respect of the CEO’s remuneration. The new draft regulations maintain this approach. While we recognise that CEO pay is normally the figure that attracts most attention, from shareholders and others, we suggest it would be more informative and representative if a figure for total executive director remuneration were provided. This approach would, in fact, make Paragraph 19(9) consistent with Paragraph 33, which requires remuneration scenarios to cover all executive directors, in accordance with a finding of the Financial Reporting Lab.
Paragraph 20
We support the intention in the draft regulations to require companies to make disclosures which place increases in directors’ pay in a wider context. This will give users the opportunity to assess the extent to which directors are recognising the contribution that staff other than themselves are making to the company’s performance.
In sub-paragraph (1), it needs to be made clear that the figure for the employees of the company as a whole should exclude the CEO him/herself.
The wording of sub-paragraph (2) needs attention.
Paragraph 23: Statement of shareholder voting
The reference to the ‘resolution’ should specify that it is a resolution under s439A.
In sub-paragraph (c), there is a reference to ‘substantial’ shareholder votes against a previous resolution on the directors’ pay policy, without any guidance as to what ‘substantial’ is intended to mean in this context. In the absence of any such guidance, individual companies will be able to adopt very high thresholds of what is ‘substantial’, in which case they will be able to avoid discussing the background to and consequences of adverse shareholder votes. It would be helpful if a threshold could be set: we suggest 25%.
Paragraph 31: Service contracts
We welcome the provision to make it easier for shareholders to access copies of directors’ contracts. It would be more helpful, however, for the text to refer specifically to the location where the contracts are kept, as opposed to where the ‘company records’ are kept.
Paragraph 32: Service contracts
The reference to para 27 should be to para 30.
Paragraph 44: Statement of consideration
In the third line, the word ‘or’ should appear between ‘were’ and ‘have’.