Effective directors’ remuneration reporting

What’s the issue?

The disclosure requirements for directors’ remuneration are both highly sensitive and one of the most complex areas of narrative reporting.  In addition, when combined with recommendations or requirements by proxy agencies and regulators, they may also result in significant negative publicity driven by press coverage or negative votes and, in extreme cases, challenges to the board.

Background

UK-listed companies are required to prepare and disclose a directors’ remuneration policy and a directors’ remuneration report (DRR) in their annual report under Schedule 8 of the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (Regulations).  The reports have both advisory (remuneration report) and binding (remuneration policy) votes attached and recommended policies and restrictions from the Financial Reporting Council (FRC).

What does this mean?

The Regulations require listed companies to report a lot of detailed information, much on a different basis than that disclosed in the financial statements. Some of this information must be audited. The information can be broadly categorised into three sections:

• The remuneration committee chair’s statement, including major decisions on directors’ remuneration.
• The directors’ remuneration report (partly audited).
• The directors’ remuneration policy.

The information in these sections includes: narrative explanations of decisions and policies; how these have affected the current year and how they will affect future years, tables of amounts paid and graphs and charts of performance and potential performance.  Other areas might include how the company has performed and what action it is taking on gender (or other) pay gaps. 

What are the reporting requirements?

Remuneration Committee Chair’s Statement: Listed companies are required to include an annual statement in its DRR, which includes:

• Decisions relating to directors' remuneration.
• Explanation(s) of how the directors’ remuneration policy aligns with the company’s strategic goals and key performance indicators.
• Any discretion(s) exercised in the award of directors’ remuneration during the financial year.

Directors’ Remuneration Report (DRR): The DRR provides a summary of directors' remuneration paid during the financial year. Amongst other items, this includes:  a single total figure table containing remuneration for each director, a performance graph consisting of share performance of the company, a benchmark of a comparator index and a statement of implementation of remuneration policy in the following financial year.

Companies with more than 250 UK employees must also include a CEO pay ratio table in their DRR.

Directors’ Remuneration Policy: The directors’ remuneration policy is a forward-looking document and sets out a company’s future policy on directors’ remuneration. It should include information, such as:

• An explanation of why performance conditions were chosen.
• A summary of the methods for assessing whether the performance conditions are met and an explanation of why the methods and performance conditions are chosen.
• Malus and clawback provisions in remuneration schemes and policies.
• Duration of contracts with directors, notice periods and termination payments.
• Conditions that allow the remuneration committee to exercise discretion to adjust the prescribed formula and fixed structure relating to bonuses, performance targets, in exceptional circumstances.

What other matters do companies need to consider?

Where policies are deemed too generous or out of line with UK norms, proxy advisers may advise shareholders to vote against election of the RemCo chair, the remuneration policy and/or the DRR.

Shareholder approvals on (re-)election of the RemCo chair and the remuneration policy are binding. Shareholder approval of the report is only on an advisory basis. But the UK Corporate Governance Code requires the company to summarise reasons for significant votes against (even where not a majority) and actions taken in response to such a negative vote.

When casting votes, shareholders might consider the level of information disclosed in annual reports and recommendations issued by proxy advisers.  Major shareholders will normally be consulted in advance and the efforts to achieve such consultation should be explained.

Companies should consider how to disclose:

• The alignment between performance and pay outcomes.
• The application of committee discretion (if any).
• The clarity of remuneration structure, including an explanation of how performance targets are determined, specific targets and metrics, and how these specific targets link with the company strategy and risk management and financial (and non-financial) performance.
• Provisions relating to directors’ remuneration of the Code, including the alignment of the directors’ remuneration (including pension) with the wider workforce, and how and in what circumstances that malus and clawback provisions might or were applied.

Proxy advisers may advise shareholders to vote against the DRR if it shows:

• Excessive or uncapped pay or a poor link with performance.
• Lack of clarity or omissions of provisions in disclosure regarding the remuneration structure.
• Unjustified changes to policy or actions which appear to be outside it.

When considering future remuneration policies, companies are encouraged to engage with their major shareholders early in relation to the proposed changes in the directors’ remuneration policy, and disclose actions taken in relation to the feedback received.

Practical considerations: Preparing a Directors’ Remuneration Report and Directors’ Remuneration Policy

When preparing a Directors’ Remuneration Report and Directors’ Remuneration Policy, here are some practical tips for making your reporting useful and informative.

• Present information in three sections: remuneration committee chair’s statement, directors’ remuneration report and directors’ remuneration policy.
• Extract information from board papers and minutes to provide a clear audit trail for your auditors.
• Provide narrative disclosures in relation to:
  • Discretion, if any, is applied by RemCo and explanations of applying the discretion are provided in the remuneration committee chair statement.
  • Shareholder engagement relating to any changes in certain aspects of directors’ remuneration policy.
  • Triggers of malus and clawback applied during the financial year, and against whom.

Who is applicable to?

The Regulations are applicable to all UK companies listed on the Main Market of the London Stock Exchange.  They also capture UK companies listed on certain other exchanges such as NASDAQ, NYSE and the main markets of the principal European exchanges. They do not apply to Alternative Investment Market (AIM) listed companies.

Where can I get more guidance?

Guidance related to annual report disclosure for directors’ remuneration matters can be found in the Companies (Directors’ Remuneration and Audit) (Amendment) Regulations 2025, the UK Corporate Governance Code, the Association of Investment Companies Code, and the IA’s Principles of Remuneration

The GC100 and Investor Group published Directors’ Remuneration Reporting Guidance in 2025.

For financial companies which fall under the scope of Remuneration Codes under SYSC 19B, SYSC 19D, SYSC 19E and SYSC 19G (for alternative investment managers, dual-regulated firms, UCITS, and MIFIDPRU investment firm, respectively) must consider the remuneration principles and disclose the relevant information under the Remuneration Codes, as well as the requirements under the ‘Remuneration Part’ of the PRA Rulebook.