Programa de Fortalecimiento del Sector agropecuario en el Municipio de Arboledas El objetivo de este programa consiste en disminuir los índices de

Disclosure is always seen as the cost of having the benefit of limited liability, which separates the wealth of shareholders from that of the company, so that creditors cannot sue shareholders directly. Transparency and the disclosure of remuneration can play an important role in ensuring the accountability of directors to shareholders as well as alleviating public concerns about remuneration practices.175 This can also play an important role in gearing the focus and affecting the structure of remuneration in terms of it being more performance linked and preventing directors awarding themselves a large non-performance linked payment.176 Disclosure can be a useful tool in reducing the cost of informing shareholders and the market about the firm’s remuneration policy and practices in establishing whether a policy is designed to attract and motivate executives or if it is non-performance linked. Disclosure will also facilitate shareholder action and media coverage of pay in general and excessive pay in particular, to enable the “outrage cost” mentioned by Bebchuk and Fried to control remuneration.177

However, it is argued that disclosure can also have a negative impact on increasing the level of remuneration, as each company benchmarks the others in setting a competitive remuneration policy which attracts, retains and motivates executives, with the focus on being in the upper quartile range.178 This negative impact has been shown by the continuing increases in executive pay, despite the measures that have been taken.

175

Greenbury Report (n 2) para 5.2.

176 _{JA Craighead, “The Impact of Mandated Disclosure on Performance-Based CEO Compensation” (2004)}

21(2) Contemporary Accounting Research 369.

177 _{Kershaw (n 1) 294.} 178

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The Cadbury Report recommended disclosure of director remuneration as best practice. 179 However, the then Labour Government did “not believe that the best practice framework [was] successful in achieving adequate levels of compliance”.180

Therefore, in 2002, the Directors’ Remuneration Report Regulations 2002, which is a statutory instrument, was enacted and sections were inserted into the Companies Act 1985 requiring the directors of quoted companies to prepare a DRR each financial year containing certain information specified in an accompanying Schedule, and to submit this DRR for an advisory vote of the shareholders.181

As a result of this regulation, the disclosure rules have been removed from the Combined Codes since the 2003 version, but not from the Listing Rules. Subsequently, these sections have become part of the Companies Act 2006.182 These sections require any (quoted) company which is listed in the UK, included in the official list as a Member of the European Economic Area, or has been admitted to dealing on the New York Stock Exchange or NASDAQ, to produce a DRR and present it to the shareholders for voting. This report must be approved by the board of directors and signed on behalf of the board by a director or the secretary of the company. Therefore, companies must comply with these sections as failure to do so is a criminal offence.183 The Companies Act 2006 also broadens the definition of quoted companies to remove any incentive for British companies to list their securities in other countries and escape the new regulation.184 The Secretary of State for Business has the power to change the definition of quoted companies by limiting or extending its application185 and may wish to extend the application to prevent British companies listing their securities on other official lists not mentioned in section 385 in order to escape the

179

Greenbury Report (n 2).

180 _{Patricia Hewitt, the Secretary of State for Trade and Industry, cited in: R Maharaj, “Fat Cat Scan – director}

pay under the microscope” (2002) 152 New Law Journal 1302, 1304.

181 _{Companies Act 1985 sections 234B(1), 241A and Schedule 7A.} 182

Companies Act 2006 sections 420-422, 439 and 385.

183 _{Companies Act 2006, sections 420-422.} 184 _{Davies (n 7) 405.}

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burdens of the regulation.186 Alternatively the application may be limited if the host state regulation is stricter than that of the UK.

The Companies Act 2006 gives the Secretary of State the powers to draw up regulations regarding the information that must be included in the DRR, its layout, and which information in the report needs to be audited and which does not. On February 19 2008, the Secretary of State signed the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 which amended the 2002 regulations by inserting a new paragraph 4.187 However, these regulations were replaced in 2013188 following an announcement in January 2012 by the Secretary of State for Business concerning failings in the corporate governance framework for executive remuneration.189 The Enterprise and Regulatory Reforms Act 2013 requires a separation and elaboration of the part containing information about the company’s forward-looking remuneration policy as well as approval of that part by shareholders at least every three years.190 If payment of remuneration did not conform to the approved remuneration policy or had not been approved by resolution of the company’s members, any directors who had authorised the payment would be jointly and severally liable for any losses suffered by the company.191

The 2013 Regulation requires the DRR of quoted companies to consist of three parts, from October 1 2013. Part one is a statement made by the chairperson of the remuneration committee; part two is the company remuneration policy and part three is information on how the remuneration policy has been implemented during the financial year, including actual payments made.

186

Companies Act 2006 section 385.

187 _{A Judes and E Hauder, “Disclosure and Shareholder Approval of executive Remuneration Packages” (2011)}

40(8) Benefit and Compensation International 11, 12.

188

SI 2013/1981 (n 69).

189 _{Department for Business, Innovation and Skills, Executive Pay: Shareholder Voting Rights Consultation}

(BIS/12/639).

190 _{Enterprise and Regulatory Reform Act 2013, section 79.} 191

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The annual statement of the chairperson must summarise the major decisions on director remuneration, any substantial changes to director remuneration made during the year, the context in which those changes occurred and any decisions that have been taken.192

The regulation also sets the minimum requirements concerning the contents of the remuneration policy. This includes a table presenting and explaining key elements of pay with supporting information on how each element supports the achievement of the company’s strategy, the potential value and performance metrics. It must contain information on the company’s approach to recruitment remuneration and loss of office remuneration, service contracts, and remuneration scenarios dependent on company and individual performance. It must also contain statements regarding how the company’s pay and employment conditions were taken into account when setting the policy for director remuneration as well as whether or not any shareholder views were expressed and if these were taken into account.

The third part must contain the annual implementation report, which is equivalent to past annual reporting requirements for director remuneration and is sub-divided into two sections. One is subject to audit and includes the new single figure of total remuneration for each director. The BIS has requested that the Financial Reporting Lab conduct a short-term project to obtain the views of the investment community on how the single figure should be calculated and presented to assist the BIS in developing the disclosure requirements.193 The BIS aim to have a single figure that is both comprehensive, covering all types of reward and reflecting actual payment earned rather than potential pay awarded, and consistent across companies to facilitate comparison.194 This single figure must be in the form of a table shown in the regulation which is divided into seven columns. These columns are headed as follows: salary and fees, all taxable benefits, annual bonuses, LTIP, pension, and total. The implementation report must contain information about the total pension entitlement, scheme interests awarded during the financial year, payment to past directors, payment for loss of office, statement of directors’ shareholding and share interest.

192 _{SI 2013/1981 (n 69).}

193 _{Financial Reporting Lab, “Lab Project report: A single figure for remuneration” (June, 2012).} 194

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The second part of the implementation report which is not subject to audit, must contain information on performance, graphs and tables, the percentage change in the CEO remuneration, relative importance of spend on pay, statement on implementation of the remuneration policy in the following year, consideration by directors of matters relating to pay, and a statement of voting at the last general meeting.

By introducing the new regulation and the single figure, the BIS has responded to past criticism that despite the extensive information which must be disclosed, there was little information regarding how this data was to be presented, which could prove confusing and time-consuming195 for shareholders if a company provides extensive or very technical information.196

The Listing Rules previously required all listed companies incorporated in the UK to attach a statement containing certain information about director remuneration to their annual financial report to shareholders. Calder believes that there should only be one DRR containing all the information which meets the requirements of both the Listing Rules and the Companies Act 2006.197 The FCA has finally realised this, as the BIS indicated this issue during the consultation phase of the new disclosure requirements.198 In December, the changes were finalised and the FCA kept only the requirement that listed companies need to provide information about unexpired terms of service contracts of any director proposed for election/re-election at the general meeting.199 The FCA has kept the Listing Rules which require shareholder approval of any long-term plan200 as it believes that there is not much overlap between the two sets of rules as the FCA rules are wider than the BIS regulation.201

195

BIS/11/1287 (n 4) 16.

196 _{L Roach, “The Directors’ Remuneration Report Regulations 2002 and the disclosure of executive}

remuneration” (2004) 25(5) Company Lawyer 141, 145.

197

Calder (n 54) 85.

198

Financial Conduct Authority, Consequential Changes to the Listing Rules resulting from the BIS Directors’ Remuneration Reporting Regulations and Narrative Reporting Regulations (CP13/7, August 2013).

199 _{Financial Conduct Authority, Consequential Changes to the Listing Rules resulting from the BIS Directors’}

Remuneration Reporting Regulations and Narrative Reporting Regulations (PS13/11, December 2013).

200 _{Listing Rules section 9.4.1 & 9.4.4.}

201 _{Linklaters, “Listing Rules amended to take account of new rules on directors’ pay” (28 August 2013)}

available at <http://www.linklaters.com/Insights/Employment-and-Incentives/Disclosure/Pages/Listing- Rules-amended-take-account-new-rules-directors-pay.aspx> accessed 12 December 2013.

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