Government consults on company reporting and executive pay

The Government has issued proposals to reform the reporting requirements for companies to provide information for investors on performance and pay. It is also looking at ways to stop executive pay from escalating when it does not correlate with company performance. 

The proposals to simplify company reporting are contained in the consultation paper, "The future of narrative reporting: consultation on a new reporting framework". They include restructuring the current reporting framework into a "strategic report" and an "annual directors' statement". 

For quoted companies, the remuneration element of the strategic report would have to include the key pieces of information that shareholders need to understand and assess a company's remuneration policy, including:

  • a single figure for the total remuneration of each individual director;
  • an explanation of how remuneration in the relevant financial year relates to performance, including a graphical representation of company performance;
  • proposed remuneration policy and performance measures for the year ahead, including an illustration of potential remuneration if performance measures are exceeded, met or not met;
  • the relationship between executive pay and pay across the organisation, and expenditure on executive pay as a proportion of profit;
  • information on service contracts and shareholdings of all directors; and
  • a summary of how the remuneration committee came to its decision. 

More detailed information, such as tables showing the various components of remuneration for each individual director, would have to be provided in the annual director's statement for those that request it. 

Quoted companies would also have to provide, among other things, information on:

  • the relationship between pay and company performance, including estimates of total remuneration on the basis of different levels of performance and an explanation of how the performance criteria relate to the company's strategic objectives; and
  • the proportion of women on the board. 

The Government has also published a discussion paper on executive remuneration. The suggestions in the discussion paper include that quoted companies:

  • provide a clearer statement to shareholders on how remuneration relates to achievement of the company's strategic objectives over the previous year; and
  • be required to explain how the criteria for all performance-related pay, including cash bonuses, long-term incentive plans and executive share-option schemes, relate to the company's strategic objectives. 

The closing date for responses is 25 November 2011. 

Also

Finance sector pay: higher basic pay compensates for lower bonuses Pay awards in the finance industry have been boosted by healthy sector performance, but there has been a shift in methods of reward due to stricter rules around bonus payments, with basic wages rising notably as a result. 

Consultation on narrative reporting The XpertHR legal timetable provides details of the Government's earlier consultation on narrative reporting.