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Government announces reforms of directors’ pay

The Government have published details of a comprehensive reform of the framework for directors’ remuneration. The aim of the measures is to address failures in corporate governance by empowering shareholders to engage effectively with companies on pay.

The Government’s reforms to directors’ pay, set out in Directors’ pay: guide to government reforms will provide shareholders with new powers to hold companies to account, while making it easier to understand what directors are earning and how it links to company performance. Measures include: (a) A binding vote on pay policy, requiring the support of a majority of shareholders voting to pass. The policy should clearly set out how pay supports the strategic objectives of the company and include better information on how directors’ pay compares to the wider workforce; (b) The binding vote will be held annually unless companies choose to leave their remuneration policy unchanged, in which case it will be compulsory at least every three years; (c) As part of their pay policy, companies will have to clearly explain their approach to exit payments, which will also be subject to the binding vote; and (d) Companies will have to report a single figure for the total pay directors received for the year. This figure will cover all rewards received by directors, including bonuses and long term incentives. To introduce these reforms, the Government will shortly bring forward amendments to the Enterprise and Regulatory Reform Bill, currently before Parliament. The Government intends all these reforms to be enacted by October 2013.

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