Greenbury Report (Hansard, 7 November 1995)

§ Mr. Lang

The study group on directors' remuneration chaired by Sir Richard Greenbury published its report on 17 July. In an oral statement to the House that day,Official Report, columns 1311–12, I set out the Government's initial response, welcoming the group's work and the emphasis placed by its report on the need for pay to be justified by performance. The support which the report has commanded since its publication, and the 703W fact that those to whom the report is addressed have already begun to act upon its recommendations, are further confirmation both of the value of the group's work and of the effectiveness of the self-regulatory approach that it promotes.

In the short time since the recommendations were published, it has become clear that the Greenbury report will do much to improve accountability and communication with shareholders, and to foster best practice in setting executive remuneration.

The Government welcome the stock exchange's agreement to enforce the Greenbury recommendations through its listing rules, which are binding on listed companies. Since publication of the report, the stock exchange has consulted on the wording of amendments to its listing rules designed to give effect to recommendations contained in the Greenbury report relating to the determination and disclosure of executive directors' remuneration and the explanation of company policy on executive remuneration. The stock exchange has now issued amended listing rules, which will come into effect for reporting periods ending on or after 31 December 1995. It is undertaking further consultation on incorporating other aspects of the Greenbury recommendations into its rules.

The Greenbury recommendations are primarily addressed to listed companies whose shares are traded widely, and the decision of the stock exchange to amend the listing rules is therefore an appropriate way forward. The Government do not propose to duplicate these requirements in legislation, but will seek to ensure that the legislation relating to disclosure of directors' remuneration is consistent with the Greenbury recommendations as implemented through the listing rules. In particular, the Government accept the recommendation that the Companies Act 1985 should be amended to remove overlap with the group's recommendations for full disclosure of directors' remuneration. We also note the conclusions reached by the Greenbury group on the disclosure of pension entitlements, and the recommendation that the information which companies supply on directors' pension entitlements should reflect the value of the pension entitlements to the director, rather than the pension contributions made by the company. We accept the recommendation that the Government should review the Companies Act requirements for disclosure of information on directors' pensions once the technical issues raised by the Greenbury recommendation have been resolved and companies are able to make the new form of disclosure.

We will undertake public consultation on detailed proposals for amending the Companies Act by statutory instrument, which will take account of these two specific recommendations and more generally will ensure consistency of approach between the Companies Act requirements and the Greenbury recommendations.

My right hon. and learned Friend the Chancellor of the Exchequer has announced his intention to make amendments to the rules on the taxation of executive share options in the next Finance Bill.

The Government welcome the emphasis which the Greenbury report places on accountability to shareholders. We recognise the need to ensure that both institutional 704W investors and private shareholders can continue to play their part in the affairs of the companies in which they invest. A company's annual general meeting provides a focus for shareholder involvement, particularly for private shareholders. Recent events have demonstrated the importance which shareholders rightly attach to the opportunity offered by the annual general meeting to express their views and to debate issues of general concern to the company. This is a matter to which the Employment Select Committee drew particular attention in its recent report on the remuneration of directors and chief executives of privatised utilities. The committee recommended that the Companies Act should be amended to require shareholders' resolutions, where they are supported by a sufficient number of shareholders and are limited in length, to be circulated by the company to all shareholders without cost. The Government will next year be seeking views on the existing statutory rules under which shareholders may table resolutions for discussion at general meetings, and whether any amendments are necessary in order to ensure that the arrangements work effectively without imposing undue burdens either on the company or on its shareholders.