The Enterprise and Regulatory Reform Bill was published yesterday and contained within it at section 57 is confirmation that the Bill will start the process of giving shareholders of quoted companies a binding vote on directors’ remuneration.
Section 57 will delete sub-section 439(5) of the Companies Act 2006. That sub-section states that the remuneration of a person cannot be made conditional on a shareholder resolution approving the directors’ remuneration report being passed.
Removal of the sub-section opens the door to making remuneration conditional on shareholder approval – but it will require further legislative action to introduce the concept of a shareholder binding vote on pay. As the Explanatory Notes to the Bill state:
“The repeal of this section does not automatically have the effect of making directors’ remuneration contingent on the outcome of the shareholder resolution on the directors’ remuneration report. As such, therefore, the repeal of section 439(5) does not, in itself, mandate a binding vote on the directors’ remuneration report.”
The BIS press release that accompanied the publication of the Bill makes clear that the Government is still thinking about how to how to enact that binding vote:
“The Government recently consulted on proposals to give shareholders binding votes on directors’ pay. Following consideration of the consultation responses, the Government aims to bring forward further detail on how this will work later in the legislative process.”