Question to the Department for Business, Energy and Industrial Strategy:

To ask Her Majesty's Government what assessment they have made of the effectiveness of corporate governance regulations covering (1) annual bonus awards, (2) remuneration committees, and (3) companies employed to advise remuneration committees.

UK quoted companies are currently subject to a range of regulatory requirements and UK Corporate Governance Code principles and provisions covering executive remuneration, including in respect of annual bonus awards, the role of remuneration committees, and remuneration advisers.

Under the Large and Medium-Sized Companies and Groups (Accounts and Reports) Regulations 2008, as amended in 2013, annual bonus awards may only be paid within the terms of a remuneration policy approved by shareholders through a binding vote. The amount of any annual bonus, and details of the extent to which corresponding performance targets have been met, must be disclosed in the annual directors’ remuneration report which is subject to an advisory shareholder vote.

The Regulations also require that the annual directors’ remuneration report provide details of any person or persons who have advised the remuneration committee, including the nature of that advice and the fees paid for it, and whether and how the remuneration committee has satisfied itself that the advice received was objective and independent.

The UK Corporate Governance Code has provisions on remuneration committees’ responsibilities and composition, including having at least three, or in the case of smaller companies two, independent non-executive directors and to disclose the committee’s terms of reference and the authority delegated to it by the board.

The Government’s response to the Corporate Governance Reform green paper consultation, published on 29 August 2017, announced a number of measures to enhance transparency and accountability in executive pay. These include: a new statutory requirement on UK quoted companies to disclose and explain annually the ratio of their CEO’s total annual remuneration, including any annual bonus, to the average of their UK employees’ remuneration; and new responsibilities for remuneration committees in a revised UK Corporate Governance Code (subject to consultation), to engage with the workforce and to explain how executive pay aligns with wider pay and performance.

These new measures will further strengthen the UK’s executive remuneration framework, in particular by giving shareholders and other interested parties more information with which to assess whether executive pay, including annual bonuses, is justified by performance and consistent with pay and reward in the rest of the company.