Wide ranging reforms on reporting executive’s pay came into force today. The new rules will ensure that shareholders have clear information about board member’s remunerations; measures which the UK Department for Business, Innovation & Skills (BIS) said have been welcomed by Business Secretary Vince Cable.
The BIS revealed that approximately 900 UK quoted companies will be required to inform shareholders about how much top executives are, or have been, paid. The reforms also enable shareholders to exercise new legally binding votes on director’s salaries.
Reforms to the way non-financial reports are made will also mean that shareholders will have access to less complex information, giving them the ability to hold quoted companies to account during the financial year.
Executive pay reporting regulations now include: a pay policy covering all payments made to directors, including exit payments, which will be subject to the new legally binding vote; an illustration of award levels that could pay out for various grades of performance, which will mean pay information is presented in a clearer format; and all elements of directors’ pay will be reported in a single, cumulative figure. The new rules specify how this should be calculated, in order for consistency; and clearer information on how performance conditions are used to assess executive’s variable pay.
Narrative reporting will be made clearer with the introduction of a ‘Strategic Report’, which will help companies provide better information on strategies and business models, the challenges and risks faced and future opportunities. Attention will be focused on board diversity and the company’s ability to retain and develop its most talented employees by disclosing gender balance at board level and in senior management, as well as in the company as a whole. The report will also include details about any human rights issues that could affect the business. In addition, companies are encouraged to consider how greenhouse gas emissions can be reduced by making disclosures on this issue.
The changes will affect all reports produced in relation to financial years ending on or after 30 September 2013.
Cable stated: “Over the last decade the pay of our top executives has quadrupled but it has not always been an indication of how well a particular company has performed. At the same time company reports have become increasingly complicated without giving shareholders the right sort of details they need in order to evaluate performance.
“The signs are that we are moving in the right direction and in the last year we’ve seen some restraint. Our reforms mean shareholders will now no longer be kept in the dark. They now have powerful tools for every shareholder – big or small- to speak up and challenge companies over excessive pay and prevent big bosses being rewarded for failure.”