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Under the most recent Enterprise and Regulatory Reform Act 2013 (ERRA 2013) it would appear that there may be a movement towards greater regulatory control of remuneration. Before the

document is explored it is important to place the provisions in context, it has already been noted that there has been some use of the shareholder discretionary vote during the Shareholder Spring of 2012, what was clear from the Spring was that non-binding discretionary voting was not universally effective.189 _{When announcing the reforms that ultimately culminated in the ERRA 2013, the}

184 _{Lucian Bebchuk and Jesse Fried, Pay without Performance: The unfulfilled promise of Executive}

Compensation (Harvard University Press, 2004) 198. 185 _{Hampel Review (n 75) 2.14.}

186 _{ibid 4.21.}

187 _{Walker Review (n 10) 7.22.} 188 _{ibid recommendation 36.}

189 _{BIS, Directors' pay: guide to Government reforms (BIS, 2012) accessed at}

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/31378/12-900-directors- pay-guide-to-reforms.pdf [accessed on 4 September 2014].

198 | P a g e government noted that, whilst the advisory vote was designed to give shareholders an effective and more focused way in which to influence directors pay. The feedback from shareholders was that many companies were not responding adequately to their concerns.190 _{As a result the government}

sought to introduce the first binding vote on a company’s pay policy.

Based upon the BIS policy document Directors' pay: guide to Government reforms.191_{It was}

established that whilst the advisory shareholder vote was designed to give shareholders an effective and more focused way in which to influence directors' pay, feedback from shareholders is that many companies showed that institutions were not responding adequately to their concerns. As a result Government sought to introduce a binding vote on executive remuneration under the ERRA 2013, the intention of the ERRA 2013 was to allow shareholders to be better prepared to hold companies to account.192

The ERRA 2013 is the first piece of binding legislation that has required a binding vote on

remuneration, whilst this is not a binding vote on specific remuneration packages, it has created a requirement for the approval of general remuneration policy under S.79. S.79 inserts a new

requirement into s.439A of the Companies Act 2006 which creates a binding shareholder approval of the directors’ remuneration policy; this is intended to be done by ordinary resolution at least every three years. Further to the new remuneration policies, the act created a legally binding obligation to ensure that no payments may be made to directors that are not consistent with the approved directors’ remuneration policy, unless it has been approved by members.193

Disclosures of exit payments, the infamous golden parachute clauses, have also been addressed slightly by the most recent Enterprise and Regulatory Reform Act 2013. Under s.79 the Act inserts a new s.421 (2A) sub clause into the Companies Act 2006. Under the Act it requires the directors’ remuneration report to publish the policy of the company with respect to the making of

remuneration payments and payments for loss of office. This whilst again is not necessarily binding on any individual director, when exercised in conjunction with the new s.439A approval provisions it will allow for discussion and binding approval from shareholders.

190 _{ibid 2.}

191 _ibid.

192 _{Vince Cable (n 22).}

199 | P a g e

Are Binding Votes Effective?

Business Secretary Vince Cable was extremely positive about the reforms and he believed that this created real powers for shareholders. ‘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’.194 _{But is this really the case, the provisions do require a}

binding vote at least every three years on remuneration policy but it does not require the disclosure or binding vote on individual remuneration packages, it is by no means invasive and only requires an ordinary vote.

More recently there have even further attempts to introduce, binding shareholder votes. The Executive Pay and Remuneration Bill 2013-14 was published on 6 September 2013 this Bill proposed to introduce an annual binding vote on executive remuneration. Under the bill:

‘s.2 (1) Each public company limited by shares shall, at each annual general meeting, propose a motion specifying the remuneration of executives employed by the company, and the result of the vote shall be binding on the company.

(2) No motion under subsection (1) shall be treated as agreed to unless the shareholdings of those shareholders who vote in favour comprise at least 75 per cent of the

shareholdings of all shareholders who vote on the motion.

(3) In this section, “executive” means any executive director of the company. ‘

If introduced the Bill would require a binding vote by special resolution. It is believed that due to the nature of the special resolution vote this may have been a greater aid to corporate governance. A special resolution is usually reserved for votes that are deemed fundamental to the company for example alteration of articles195 _{or a change in name.}196 _{Introducing remuneration approval as a}

special resolution would place control of executive remuneration on the same statutory footing. It is purported that given the level of exposure and interest executive remuneration has accrued both prior, and since the financial crisis, it would be correct to consider it as fundamental to the company. The Bill would be far more invasive to company policy than anything that has come before, however as a Private Members Bill it does not appear to have garnered much support, the Bill lapsed on the 4 September 2013, and there does not appear to be any attempts to by Parliament to reintroduce it.

194 _{BBC, ‘New executive pay rules give shareholders binding vote’ BBC (1 October 2013).} 195 _{S.21(1) Companies Act 2006.}

200 | P a g e Whilst there are clear provisions for the implementation of there is currently no guidance as to how boards should respond if the company fails to obtain the majority in support of a resolution on remuneration.197 _{The Regulations require, in the annual remuneration report, disclosure of the}

details of the votes on the previous year’s report and where there was a significant vote against either resolution, to give a summary of the reasons, where known, and any actions taken in response. However, this would not

Restricting the Amount of Remuneration: The Bonus Cap and Curbing