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Company Law Reform Bill [HL]

I will try to do so in finishing this presentation, but if my noble friend thinks that at the end of the day it is not sufficient, I am happy to write to him. As I was saying, the remuneration committee has to disclose the name of any person who provided advice or services that materially assisted the committee. That ensures a minimum level of disclosure to shareholders about the work of the committee. We intend to re-enact those provisions in regulations under Clause 397. The other principle is full disclosure and transparency. We believe that sunlight is the best disinfectant. That is why we introduced requirements for full disclosure in quoted companies under the directors’ remuneration report in 2002. The noble Baroness, Lady Noakes, referred specifically to that. We believe that regulation should be proportionate. The issues relating to directors’ remuneration are best addressed through a combination of regulation and best practice. While we certainly agree that statutory underpinning is necessary in this area, we believe that a ““comply or explain”” basis works best in relation to areas such as the role of the remuneration committee and the level and make-up of remuneration. We also believe that it is right that statutory intervention should principally address the position in quoted companies. While there should be appropriate disclosure by other companies, we do not think that there is a need for a very full disclosure or for a mandatory shareholder vote. While the Government cannot accept my noble friend’s amendments, we have taken significant action in this area, as was acknowledged in the debate. In August 2002, the Government introduced the directors’ remuneration report regulations. These require quoted companies to produce a detailed annual directors’ remuneration report which is put to a shareholder vote at each annual general meeting. This gives the UK a comprehensive, transparent and accountable framework for directors’ pay which compares very favourably with other similar market economies. These provisions are to be re-enacted by this Bill and regulations to be made under it. The Government also consulted on the specific issue of ““rewards for failure”” in 2003. This took place in response to continuing investor concern about situations where directors leave companies which have performed poorly, but receive excessive compensation packages when their contracts are terminated. The Government’s response to this consultation included announcing the monitoring of compliance with the directors’ remuneration report regulations. In January 2005, an independent report by Deloitte & Touche underlined the effectiveness of the Government’s action in making directors’ remuneration subject to closer scrutiny by shareholders. It demonstrated a significant increase in the levels of compliance with the directors’ remuneration report regulations; growing investor satisfaction with improved disclosure on directors’ pay and awards; better communication and engagement between shareholders and companies; and that companies are changing their remuneration policies and practices to reflect the link between pay and performance. On the basis of what noble Lords have said, it may be recognised that we have further to go on this. As the noble Lord, Lord Sharman, pointed out, if the message is not getting through, that is a matter for concern. However, I hope that I have been able to reassure my noble friend Lord Lea that the Government share his concern about the need for proper accountability, transparency and performance linkage on the issue of directors’ pay.