Remuneration governance – the UK example

1. Remuneration governance – the UK example Perceived problems: Insufficient shareholder discipline Increases in bonuses and other awards even when the company was not performing Public mistrust of business Solution: New regime for disclosure and voting by shareholders

2. Remuneration governance – the UK example What new rules require – voting • Binding shareholder vote every three years on remuneration policy • Annual advisory vote on implementation • Fresh vote on policy if implementation vote is rejected • Annual re-election of directors remains in place What the new rules require – reporting • Separate policy and implementation report • Single figure for amount received by each director • Statement by Remuneration Committee chair • Information on company performance set against remuneration trend • Statement of directors’ holdings and holding guidelines • Details of termination payments

3. Remuneration governance – the UK example “A strong package of reforms” which would “restore the link between remuneration and performance.” Vince Cable, Business Secretary • Expected benefits: • Greater accountability of companies to shareholders • Greater transparency in the operation of remuneration • Limited discretion for companies to deviate from agreed policy = more discipline • No government interference in the detail of pay

4. Remuneration Governance – the UK example Perceived shortcomings: • Built around existing practice – stifles innovation • Binding votes on policy create pressure for bland policy • Excessive detail pushes up cost of compliance • Does not address some key issues – how pay is valued • Over-complex voting processes and excessive burden on shareholders = greater reliance on proxy voting agency advice • No need for additional binding vote when directors can be dismissed • Does not apply to companies listed in UK but domiciled abroad