Companies (Directors’ Remuneration Policy and Directors’ Remuneration Report) Regulations 2019 — House of Lords, 2019-05-08
Topic: Domestic Commerce
Oliver Michael Robert Eden (Conservative, Centre-right): My Lords, these regulations add certain new requirements to the reporting of directors’ remuneration by publicly quoted and traded companies. The purpose of the new measures is to give shareholders more information with which to assess how rewards to directors are matched by performance—for example, by requiring companies to provide more detail about the award of company shares to directors The new requirements stem from a new European directive, commonly known as the revised shareholder rights directive. The directive is due to be transposed by 10 June 2019. These draft regulations would implement Articles 9a and 9b of the directive, covering the reporting of directors’ remuneration, to the extent that they are not already given effect in existing UK law. Other parts of the directive are being implemented by Her Majesty’s Treasury, the Financial Conduct Authority and the Department for Work and Pensions. The regulations add a small number of additional requirements in respect of the directors’ remuneration policy and the directors’ remuneration report which publicly quoted companies are already required to produce under the Companies Act 2006. The main change that the draft regulations would make to the remuneration policy would be to require companies to provide additional detail about proposed share-based remuneration to directors, including arrangements under which directors can exercise their shares The Government believe that this will be a valuable addition to the existing framework for executive pay reporting. The award of company shares to directors is of considerable interest to shareholders since it has the potential to align the interests of directors more firmly with the long-term success of the company The draft regulations also provide for the remuneration policy to set out more information on directors’ service contracts, in particular their length, and to highlight the key changes introduced in a new remuneration policy compared to the previous policy For the remuneration report, the main new requirement proposed in the regulations is for companies to compare the annual change in directors’ remuneration to the annual change in average employee pay over a rolling five-year period. This new measure would provide greater transparency on how pay in the boardrooms of quoted companies aligned with pay and reward across the company as a whole. It would also complement a new obligation introduced by the Government last year for quoted companies to disclose and explain each year the ratio of their chief executive officer’s total annual pay to the average pay of the company’s UK employees. The regulations additionally propose that remuneration reports in future show the split between fixed and variable pay for each director in every year Taken as a whole, the new measures in the regulations would further strengthen confidence in the UK’s executive reporting framework as one based on transparent, consistent and accessible public reporting to shareholders I want to highlight two provisions in the draft regulations intended to ensure the compatibility of the new measures—which, as I have said, originate from the revised shareholder rights directive—with the UK’s existing company law framework The first of these concerns the scope of the companies covered by executive pay reporting. The UK’s existing executive pay regime applies to quoted companies, whereas the shareholder rights directive that these draft regulations will help implement applies to traded companies. In practice, the vast majority of traded companies are also quoted, meaning that their shares are both tradeable on a regulated market and quoted on the FCA’s official list. The draft regulations address this slight differentiation in company definitions between the directive and UK company law by providing for executive pay reporting to apply both to quoted companies and to traded companies, whether or not they are quoted on the official list.