Section 439A of the Companies Act 2006 (UK) states that a company’s remuneration committee must prepare a report on executive pay and submit it to shareholders for approval at the annual general meeting. The report must include details of the company’s policy on executive pay, the level and structure of pay for each director, and any performance-related elements of pay. The report must also explain how the company has taken into account shareholder views on executive pay.
Section 439A of the Companies Act 2006 (UK) is a provision that requires a company’s remuneration committee to prepare a report on executive pay and submit it to shareholders for approval at the annual general meeting. The report must contain details of the company’s policy on executive pay, the level and structure of pay for each director, and any performance-related elements of pay. Additionally, the report must explain how the company has taken into account shareholder views on executive pay.
Facts:
The purpose of Section 439A is to ensure that companies are transparent about their executive pay policies and practices. This provision was introduced in response to concerns about excessive executive pay and the lack of accountability and transparency in the remuneration process.
Relevant laws:
Section 439A of the Companies Act 2006 (UK) is the primary law that governs executive pay reporting requirements for companies. The UK Corporate Governance Code also provides guidance on best practices for remuneration committees and executive pay.
Application of laws to facts:
Section 439A requires companies to prepare a report on executive pay that includes details of the company’s policy on executive pay, the level and structure of pay for each director, and any performance-related elements of pay. The report must also explain how the company has taken into account shareholder views on executive pay.
Key legal issues or questions:
The key legal issues or questions that arise from Section 439A include what constitutes an appropriate executive pay policy, how to determine the level and structure of pay for each director, and how to take into account shareholder views on executive pay.
Likely outcome:
The likely outcome of Section 439A is that companies will be required to be more transparent about their executive pay policies and practices. Shareholders will have greater visibility into how companies determine executive pay and will be able to hold companies accountable for excessive pay practices.
Alternatives or different interpretations:
There are alternative interpretations of Section 439A, including whether the provision goes far enough in addressing concerns about executive pay and whether it is enforceable.
Risks and uncertainties:
The risks and uncertainties associated with Section 439A include potential litigation from shareholders who are dissatisfied with a company’s executive pay practices and reputational damage to companies that are found to have excessive or unfair executive pay practices.
Advice to the client:
Companies should comply with Section 439A by preparing a report on executive pay that includes all required information and by taking into account shareholder views on executive pay. Companies should also consider implementing best practices for remuneration committees and executive pay to ensure that their policies and practices are fair and transparent.
Related case laws and judgments:
1. Investment Association’s Executive Remuneration Working Group Report (2016)
2. The High Pay Centre’s “Pay Ratios: Justifying Executive Salaries” report (2017)
3. The Financial Reporting Council’s UK Corporate Governance Code (2018)
4. The UK government’s Green Paper on Corporate Governance Reform (2017)
5. The Investment Association’s Principles of Remuneration (2019)
