The existing legal framework provides full transparency about directors’ remuneration arrangements, including on salaries and bonuses, and gives shareholders a strong say on pay.
Since 2013, the law has required quoted companies to prepare a directors’ remuneration policy. This must set out how the company proposes to pay directors, including every element of remuneration that a director is entitled to and how it supports the company’s long-term strategy and performance. Companies are required to put the remuneration policy to a binding shareholder vote at least once every three years.
Companies must also publish an annual remuneration report showing how the approved pay policy has been implemented, including a single figure for the total pay directors received that year. This report is subject to an annual advisory vote. If the company loses this vote, it is required to put a new remuneration policy to shareholders the following year.
Alongside the legislative requirements, the UK Corporate Governance Code includes principles and provisions setting out how companies should approach executive remuneration, including a principle that executive remuneration should be “aligned to company purpose and values and be clearly linked to the successful delivery of the company’s long-term strategy”. The Financial Conduct Authority’s Listing Rules require companies to make a report in their corporate governance statement to enable shareholders to evaluate how the principles have been applied.