The Enterprise and Regulatory Reform Act 2013 which will introduce new provisions on directors’ remuneration as part of the reforms of executive pay in quoted companies has now received Royal Assent and the new regime is expected to come into force in October 2013.
The following key changes are set out in sections 79 to 82 of the Act:
- remuneration or loss of office payments to current, former or future directors cannot be made unless these payments are consistent with the most recently approved remuneration policy or are separately approved by members;
- inconsistent remuneration payments will be held by the recipient in trust and can be recovered by way of an action started by the company or by a derivative action by members. Directors who authorised the payment will be liable to the company for any loss unless they can demonstrate that they acted honestly and reasonably;
- the directors’ remuneration report must include, in a separate part, the company’s policy on directors’ remuneration. Accordingly, the directors’ remuneration report will contain both a policy part (the policy report) and the customary information on how the policy was implemented in the year being reported on; and
- the directors’ remuneration report minus the new policy report will continue to be subject to the customary annual advisory vote of members. The policy report will need to be approved by ordinary resolution of members at least once every three financial years (although this may have to happen sooner if the company wishes to change the policy, or if the shareholders did not approve the advisory vote on the non-policy part of the remuneration report in a year when the policy report was not also put to shareholders).
