25/01/2005

Disclosure rules on directors' pay 'working', claims Minister

Better disclosure on directors' pay is leading to "improved dialogue" between companies and shareholders according to research published today by the Department of Trade and Industry (DTI).

In a written statement to Parliament, Trade and Industry Secretary Patricia Hewitt said that rules on pay disclosure introduced by the Government (Directors' Remuneration Report Regulations 2002) had had a "positive impact" and that the report by Deloitte and Touche underlined the effectiveness of making directors' remuneration to closer scrutiny by shareholders.

As a result, the Trade and Industry Secretary said Government had decided against new provisions on directors' remuneration in the forthcoming Company Law Reform Bill.

The findings showed:
  • a significant increase in the levels of compliance with the Directors' Remuneration Report Regulations;
  • growing investor satisfaction with improved disclosure on director's pay and awards;
  • better communication and engagement between shareholders and companies: over 90% of shareholders say communications have improved;
  • companies changing their remuneration policies and practices to reflect the link between pay and performance.
The research shows a rapid and almost complete reduction in directors' notice periods to one year or less, and high disclosure standards of 80% or more in 19 out of the 22 areas covered by the regulations.

All of the top 350 FTSE companies put their remuneration report to a separate shareholder vote and company directors' awards are now more likely to be vested proportionally to set levels of performance with full vesting of awards only for more stretching performance targets.

Commenting of the survey findings, Patricia Hewitt said: "Today's report shows that the regulations we introduced in 2002 have delivered a substantial change in behaviour. We are now seeing higher levels of compliance by top British companies, improved disclosure of directors' pay and rewards and better engagement with shareholders.

"The UK now has a corporate governance framework for directors' pay that leads the world in terms of transparency and accountability. While we are not complacent, we believe that a combined approach that develops best practice, underpinned by legislation, is the best way to tackle this issue."

Ms Hewitt called on the Association of British Insurers and National Association of Pension Funds, and the Confederation of British Industry, to develop a common set of best practice guidelines on directors' contracts.

The Directors' Remuneration Report Regulations 2002 require quoted companies to publish a directors' remuneration report for each financial year.

(SP/MB)

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