Shareholders tighten their grip on directors’ pay

Ministers have moved to put company directors pay under greater shareholder control.

Last week’s DTI consultation paper ‘Company law – directors remuneration’ recommended directors’ pay packages, contracts and compensation payments be fully set out and voted on at annual meetings.

Remuneration committees should be decoupled from the main board by requiring all quoted companies to set up a body composed exclusively of independent non-executive directors. Main board chairmen should be banned from joining remuneration committees, which should have access to external professional advice not employed by the company’s executive management.

The document also called for much stricter disclosure requirements to give more information on the linkage between pay and performance.

Annual reports should state actual gains made by directors from exercising share options. Reports should also state the relationship between incentive scheme awards and the company’s performance in the year in which they were made.

Details of directors’ contracts and compensation should be disclosed and a clear explanation of exit terms agreed by the board should be given to shareholders following the departure of any director.

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