| Previous Section | Index | Home Page |
Mr. Jim Cousins (Newcastle upon Tyne, Central): Why has the Minister reached that conclusion? It is extremely important that shareholders in larger companies and the wider public are fully informed about the entire structure of directors' remuneration. The Minister's proposal means that only in the case of the highest-paid director, where the aggregate emoluments exceed £200,000, will there be an individual disclosure. That individual disclosure could be vital in the case of company chairmen and, indeed, all company directors. That surely is the purpose of the stock exchange's insistence on such disclosures.
Mr. Taylor: As the hon. Gentleman rightly said, the stock exchange asked for far more in relation to listed companies. Under the regulations, we try to achieve a disclosure requirement that is manageable for all corporations. The Companies Act and schedule 6 apply to all companies, and we want the general requirement to be appropriate to a small company and the stock exchange listing rules to be appropriate for listed companies. That seems to be the proper balance.
The general domestic law that we are debating goes further than European law. With regard to listed companies, Greenbury goes further than either and is to be implemented by the stock exchange to the extent that it goes further than the domestic law.
We do not believe that small companies should be put to a great deal of trouble in evaluating, say, a share option scheme where there is no trade in the share, but at least a reader of the accounts will be put on notice. In a case such as that to which the hon. Gentleman referred, if a shareholder reads the accounts and is startled by or dissatisfied with the emoluments of the highest-paid director, it is open to him to attend the annual general meeting and call for the chairman of the remuneration committee--this is also a requirement--to give information about others, too. I am sure that, in a well-ordered company, the chairman of that committee would do just that at the AGM.
Mr. Cousins:
I am following the Minister's arguments extremely closely, but how many individual shareholders find their way to companies' AGMs, be those companies large or small? If a significant proportion of individual shareholders--leaving aside the institutional ones--were to find their way to companies' AGMs, those meetings would all have to be held in the Birmingham exhibition centre.
Mr. Taylor:
It is not for me to give a general instruction or warning to or in any way coerce shareholders to attend AGMs; many will probably read the annual report and accounts and find that nothing in them motivates them to attend. However, if they are concerned and wish to ask a question, they can do so.
One of the most important improvements made by the regulations will be the disclosure of information on directors' pensions. The current disclosure rules require companies to include contributions paid in respect of directors under any pension scheme in their disclosure of directors' emoluments. Disclosing company contributions to money purchase schemes gives an accurate picture of the value to the director and the cost to the company of the benefits accrued. We have therefore retained the use of this figure in the regulations although, in line with our general policy that companies should disclose each element of directors' remuneration, we have required companies to disclose such contributions separately.
We do not believe, however, that the present disclosures are always meaningful in the case of defined benefit schemes--pension schemes--where the level of company contributions may be misleading if, for example, a contributions holiday is in force or the director has received a big pay rise and is close to retirement.
The regulations therefore simply require companies to disclose the number of directors who are accruing benefits under defined benefit schemes as a marker to users of the accounts. Companies where aggregate emoluments for the board total £200,000 or more are additionally required to disclose the accrued pension benefits of the highest-paid director.
The regulations underpin the listing rules on listed companies by setting out a basic rule that uses compatible definitions. With minor exceptions, listed companies will have to make only a single set of disclosures to comply with the Companies Act and the current stock exchange listing rules. The pension disclosure rules are a case in point.
The regulations and the listing rules will adopt a common policy in their treatment of the two types of pension scheme and will use compatible definitions. The listing rules will, however, build on the regulations by requiring listed companies to provide, in respect of defined benefit schemes, the amount of the increase over the financial year in each director's accrued benefit and either the transfer value of that increase or sufficient information to enable a reasonable assessment of the transfer value to be made. We believe that this is important information in respect of listed companies, but that it would not be appropriate in the case of unlisted companies. The shares of such companies are not widely held by the general public and it would be unreasonable to require them to employ an actuary to value pension entitlements for the purpose of the annual accounts.
The draft regulations follow the current statutory rules in requiring very small companies to provide information only to shareholders and not also to Companies House. In the case of the disclosure of directors' aggregate emoluments, small companies will be permitted to provide a single figure covering all types of remuneration, and will not be required to provide a breakdown by type of remuneration. Small companies do not have to provide information relating to the emoluments of the highest-paid director.
Mr. Stuart Bell (Middlesbrough):
I am sure that the regulations will receive the support of the whole House, and that the serried ranks around us will, if need be, pour into the Division Lobby to support the Minister. I congratulate him on having mastered a complex measure, on giving the House the benefit of his knowledge and on the concise way in which he put his views to the House.
The Minister touched only briefly on the Greenbury report. The regulations are an attempt to remove the so-called overlaps between the Companies Act 1985 and the stock exchange's requirements, caused by its adoption of the Greenbury recommendations. However, according to a press release from the office of the President of the Board of Trade, dated 30 April 1996, the statutory instrument is designed to amend the Companies Act 1985 disclosure rules on directors' pay and pensions. Therefore, it does not simply remove so-called overlaps, but brings the requirements into line with the stock exchange listing rules--in other words, the requirements will be given full statutory backing, rather than the present self-regulatory backing of the stock exchange. The Government may talk of "overlap" or "underpin", but in reality they are putting on the statute book appropriate regulation dealing with directors' pay, pensions, share options and incentive schemes in line with the policies of the new Labour party.
The regulations apply to all companies, including listed companies, but the application of the rules will vary depending on whether the companies are listed, unlisted or small companies. In our view, however, the regulations
are needlessly complex as they seek to separate out self-regulation through the stock exchange listing requirements and statutory regulation through the Companies Act. The Government have come up with an instrument which, first, seeks to maintain self-regulation and secondly, introduces statutory regulation. That is what comes of not having a clear mind.
Easing administrative burdens, raising disclosure thresholds, dropping many existing obligations on unlisted companies, cutting the costs of disclosure and striking the right balance are all favoured objectives of the Department of Trade and Industry, but they can lead to complex regulations that obfuscate rather than clarify where the Government wish to go. The danger--the unforeseen consequence--is that it might be more difficult for shareholders to scrutinise what company directors are doing.
One result of the regulations will be to raise the bar for companies listed on exchanges other than the London stock exchange, and we welcome that. They will now have more stringent disclosure requirements, as they are to be put on a par with the requirements of the London stock exchange. Building on the Greenbury recommendations, the aggregate gains of directors of publicly listed companies, from share option schemes and long-term incentive plans, will have to be disclosed. Those for the highest-paid director will be disclosed separately.
| Next Section
| Index | Home Page |