§ Lord Sainsbury of TurvilleMy right honourable friend the Secretary of State for Trade and Industry (Ms Hewitt) has made the following Written Statement:
As announced in my Written Statement on 25 February 2004 (Official Report, Commons, cols. 51–52WS), my department commissioned a report on compliance with the Directors' Remuneration Report Regulations 2002 ("the regulations") during the course of this year's AGM season, including an assessment of changes in remuneration practices. Deloitte and Touche 48WS LLP was appointed to carry out the work following a competitive tender process. Its report is today being placed on the DTI website at www.dti.gov.uk/cld/Deloitte_Rep_DRRR_2004.pdf and in the Libraries of the House.
The report underlines the positive impact of the regulations and the effectiveness of the Government's action in subjecting directors' remuneration to closer scrutiny by shareholders. It reveals high levels of company compliance with the regulations, better clarity of disclosure on remuneration, improved communication between companies and their shareholders, and changes in companies' remuneration policies and practices improving the link between pay and performance. It also suggests that further legislation in this area is neither necessary nor desirable and that further improvements to disclosure and the linkage between pay and performance are best pursued through the development and implementation of best practice guidelines.
In the circumstances, while I will continue to keep the position under review, I have concluded that further changes to company law requirements in this area are not needed at this stage.
The report suggests some minor changes to the regulations in order to clarify what is required and improve transparency and the quality of the information provided. My department will be considering the need for these changes in the light of views expressed by stakeholders and better regulation principles. If, as a result, we consider that changes are made, these should not involve additional costs or additional regulatory burdens on companies or shareholders.
In my February Statement, I welcomed the action taken by the Association of British Insurers and National Association of Pension Funds and by the Confederation of British Industry in producing guidance on directors' contracts. The report provides a basis for the further development of this guidance. I now call on these groups to work towards providing a common set of guidelines by the end of the year.
While the report is encouraging, there is no room for complacency. The challenge for remuneration committees and their advisers remains to produce rewards packages which tie pay and performance targets to the creation of long-term value for shareholders and are transparent to shareholders. Shareholders, for their part, should satisfy themselves that remuneration arrangements for directors are in the best interests of the company. They must also be vigilant and ensure that situations where directors enjoy rich rewards while companies perform poorly and shareholders and employees suffer are challenged.