The remuneration of directors of quoted companies has been a hot topic over recent years. As the recession began to bite, shareholders became frustrated with what they saw as a disconnect between overall company performance and director pay. Although quoted companies had to submit a directors’ remuneration report to an annual shareholder vote, that vote was only an advisory one and directors’ pay was not conditional on the report being approved.

Shareholder spring

The 2012 AGM season saw shareholder revolts at a number of high profile companies with remuneration reports failing to pass the advisory vote. Investor groups lobbied hard for reforms in this area and Autumn 2013 will see the dawning of a new era of shareholder control.

The all new remuneration report

The remuneration reports of quoted companies will now be split into two parts:

  • a forward looking ‘Remuneration Policy’ which will include details of the company’s future remuneration policy and how the company proposes to pay directors, including every element of remuneration to which a director will be entitled; and
  • an ‘Implementation Report’ providing information on how the Remuneration Policy was implemented in the last financial year. This will include a single figure for the total pay each director received that year.

NEW! Binding vote

The Remuneration Policy will now be subject to a binding shareholder vote at least once every three years. Shareholders will also have an annual advisory vote on the Implementation Policy and, if that vote is not passed, it will trigger a requirement for the company to submit its Remuneration Policy to a binding shareholder vote the following year.

NEW! Restrictions on payments

Of more significance for directors are the new restrictions on payments. Once these are in force, any remuneration or loss of office payment must be consistent with the Remuneration Policy approved by the shareholders. If a payment is made which is not consistent with that policy the company will be able to sue the director to recover the payment (and if the directors’ choose not to initiate such a claim, the shareholders will be able to do so themselves). Any director who authorised the unlawful payment may also find themselves in the firing line for losses suffered as a result.

Once the restrictions on payments come into effect, any obligation to make a payment to a director which is inconsistent with the approved Remuneration Policy will have no effect – even if it is included in the director’s service contract (unless the agreement was entered into prior to 27 June 2012).


Although all quoted companies are required to have a Remuneration Policy in place in their first financial year commencing after 1 October 2013, the Government is giving them time to prepare for the reforms by not introducing the new restrictions on payments until the second financial year commencing after that date.

This means that, for a quoted company with a typical 31 December year end, it will have to submit a Remuneration Policy for approval at its AGM held in Spring 2014. The restrictions on payments will then apply from 1 January 2015 (the start of the second financial year commencing after 1 October 2013). From that date, any remuneration or loss of office payment which is inconsistent with the Remuneration Policy, or which hasn’t been separately approved by the shareholders, will be unlawful.

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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.