UK: Disclosure And Governance Of Directors’ Remuneration The Enterprise And Regulatory Reform Bill

Last Updated: 21 August 2012

Article by Robert Collard and Ian Shaw

Over the last decade directors' pay has quadrupled with no clear link to company performance. At the same time company reports have become increasingly complex without giving shareholders the information they need...I expect shareholders to use this new framework to maintain recent activism and challenge companies to inject greater pay discipline and prevent rewards for failure."

(Rt. Hon. Vince Cable, June 2012)


  • The Government proposes to address the perceived lack of linkage between executive pay and performance in quoted companies by increasing the power of shareholders and imposing additional disclosure requirements in respect of executive remuneration. These changes will be implemented as part of the Enterprise and Regulatory Reform Bill (the Bill), which is currently going through Parliament.
  • In summary, the key proposals are as follows, although the draft legislation is not yet finalised and the position is therefore subject to change:
    • The introduction of a binding vote on the company's future remuneration policy, as set out in the policy report (for details of which, see below). As a result, a quoted company will only be able to make payments to directors within the limits set out by its policy.
    • Each quoted company will need to put its policy to shareholders at the annual general meeting in the financial year beginning after the Bill becomes law: approval will be by simple majority.
    • If the company wishes to change its policy, it will require shareholder approval (again, by simple majority).
    • If the policy is left unchanged, it will still be subject to a further binding vote every three years.
    • An annual advisory vote on the implementation of the current remuneration policy, including actual sums paid, will be retained. If the company loses this vote it will have to put its policy report to a binding shareholder vote.
    • A requirement for details of a company's approach to exit payments to be included in the future remuneration policy and therefore made subject to the binding vote. When a director leaves, the company will be required to announce the amount of any exit payment the director received.
  • The Government is proposing to introduce additional disclosure requirements to support the new shareholder voting regime. It is currently consulting on draft regulations, to which responses must be made by 26 September 2012.
  • The draft regulations set out the details required to be included in the forward-looking policy report and the backward-looking implementation report. The key features of both are set out below.


  • Subject to the binding shareholder vote (at least every three years).
  • Once approved, the company will only be able to make payments within the limits the policy allows.
  • Must include:
    • the maximum value of and the performance conditions that will be applied to every element of pay to which a director could be entitled, and how these support the achievement of the company's strategic objectives;
    • graphs showing what directors will get paid for performance that is above, on and below target;
    • information on the percentage change in profit, dividends and the overall spend on pay;
    • principles on which exit payments will be made, including how they will be calculated and how performance will be taken into account;
    • details of the remuneration provisions in directors' employment contracts; and
    • factors the company has taken into account when deciding on remuneration policy, including employee pay levels and the views of employees and shareholders.


  • Subject to an annual advisory vote.
  • Explains how the policy contained in the policy report was implemented in the past financial year.
  • Must include:
    • a single figure for the total pay each director received for the year - including bonuses, long term incentives and pension provision;
    • the single figure will reflect actual pay earned rather than potential pay awarded. For variable elements of pay, the Government proposes that this includes remuneration that becomes receivable as a result of the achievement of conditions relating to performance in the reporting year. Where the performance period is longer than a single year, it should reflect the remuneration where the financial year being reported on is the last year of the performance cycle. This includes the value (or an estimated value) of long term incentives where final vesting is determined as a result of the achievement of performance conditions that end in the year being reported on;
    • details of any exit payments made in the year;
    • information on how well the company performed against performance conditions and how this impacted on the overall level of pay - including a comparison between company performance and the chief executive's pay;
    • details of the potential future value of new variable awards made in the year; and
    • the results of shareholder votes at the previous AGM and an explanation of any action the company took in response.


  • As is the case with the existing measures on directors' remuneration, the new requirements will apply to all 'quoted companies', so will include UK-incorporated companies which are officially listed in an EEA State or admitted to dealing on either the New York Stock Exchange or the Nasdaq, but will not include companies on AIM.


  • The restrictions on remuneration and exit payments will apply from the date the company's first directors' remuneration policy is approved, or, if earlier, from the end of the first financial year of the company beginning after the legislation comes into force, expected to be 1 October 2013.
  • Payments to directors (or persons to be directors) under contracts made before 27 June 2012 are outside the scope of the new provisions, provided they are not amended (for example, to effect a salary increase) or extended.


  • The Bill states that any remuneration or exit payment in breach of the legislation will be held by the recipient on trust for the company or other person making the payment.
  • In addition, the Bill provides that any director who authorised the payment will be jointly and severally liable to indemnify the company.


  • Where entering into or amending contracts with directors, companies should now be including provisions dealing with the potential application of the legislation.
  • Companies should start considering how to formulate their forward-looking remuneration policy and consider whether they wish to contribute to the consultation process before it closes on 26 September 2012.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.