Analyse the legal and regulatory requirements which apply to directors’ remuneration;

November 30, 2016| Papers Haven

Analyse the legal and regulatory requirements which apply to directors’


Corporate Law


“The UK has devoted considerable regulatory resources to seeking to limit the growth of directors’ remuneration, despite this being a

very challenging goal within the constraints of a free market economy. Despite this the exercise must be deemed a failure, both in

terms of achieving this goal and the UK’s own international competitiveness as a regulatory regime.”

Critically analyse this statement. You should evaluate relevant UK legal doctrine and procedures in their theoretical, doctrinal and

international context.


Please be note that
1.the reference should provide by OSCOLAR style
2.this assignment should consider in the concept of critical analyse in particular case law.

Books requires that it will useful for you

1.Principles of Modern Company law Nine edition page 383
2.Boyle& Birds’ Company Law Chapter 15 page 549
3.Sealy & Worthington’s Cases and Materials in Company law tenth edition page 261-277, especially 270-277
4.Company Law Alan Dignam& John Lowry 7th edition page 288, especially page 304


In this session we focus on directors’ remuneration. The subject of directors’ remuneration has become central to the corporate

governance debate and undoubtedly played a significant role in raising its prominence. The concept of directors’ remuneration sits ill

at ease alongside a range of company law assumptions, such as the scope of a director’s duties. It raises awkward questions as to the

reality of board accountability to shareholders which have wider ramifications. The crisis in the banking and financial services sector

has provided further impetus for reform in this area.

Your objectives for this session are to be able to:

(a) Analyse the legal and regulatory requirements which apply to directors’

(b) Evaluate the attempts to control directors’ remuneration in the light of relevant
academic theories and debate.



Dignam, A. & J. Lowry, “Company Law” (Oxford: Oxford University Press, 2014), Ch. 13


Birds, J. et al., “Boyle and Birds’ Company Law” (Bristol: Jordans, 2014), Ch. 15
Davies, P.L. and S. Worthington, “Gower and Davies’ Principles of Modern Company Law” (London: Sweet & Maxwell, 2012), Ch. 14
Kershaw. D., “Company Law in Context” (Oxford: Oxford University Press, 2012), Ch. 8

Further reading:

Cheffins, B., “Company Law” (Oxford: Oxford University Press, 1997), Ch. 14

Sealy, L & Worthington, S. “Cases and Materials in Company Law” (Oxford: Oxford University Press, 2013), Ch. 5

Cheffins, B.R. & R.S. Thomas, “Should shareholders have a greater say over executive pay: learning from US experience” (2001) 1 Journal

of Corporate Law Studies 277
Petrin, M. “Executive compensation in the UK: past, present and future” (2015) Company Lawyer 196
Villiers, C., “Executive pay: beyond control?” (1995) Legal Studies 260

[References to “Model Articles” are to the Companies (Model Articles) Regulations 2008, Sch. 1 Model Articles for Private Companies

Limited by Shares except where otherwise stated]

[NB We will not refer generally to Table A in this session other than by exception but you should be aware that at present the

overwhelming majority of companies are still likely to have Articles of Association which refer to various versions of Table A or its

predecessors, rather than the new Model Articles]

[NB We will not cover industry specific regulation, specifically that applicable to the financial services sector]


(a) Origins of recent concerns

Statistical illustrations of international and UK issues:
– International: Graef Crystal (1991)
– US: Forbes Magazine (1991)
– UK: Management Today (1996)
– UK: Independent on Sunday (1996)
– UK: “Watching the World Pig of a Day for British Gas” (1995) Oil and Gas Journal http://www.ogj.com/articles/print/volume-


Illustrations post-2008 banking crisis:

“Business as usual: top directors get 49 per cent pay rise” Independent 28.10.11, source Incomes Data Services

But consider further, e.g. Lloyds Banking Group Annual Report and Accounts 2010

(b) Economic arguments

Agency problems
Collective action problems
Government/ regulatory failure

(c) Moral arguments

Procedural v substantive justice?
Competing models of distributive justice?

John Rawls “A Theory of Justice” (1973)
Robert Nozick “Anarchy, State and Utopia” (1974)
Cheffins “Company Law, Theory, Structure and Operation” (Oxford, Clarendon, 1997), Chapters 3 and 14

(a) No presumptive right to remuneration

Hutton v. West Cork Railway Co (1883) 23 ChD 654
Moriarty v. Regent’s Garage & Co [1921] 1 KB 423
Re Richmond Gate Property Co Ltd [1965] 1 WLR 335
Guinness plc v. Saunders [1990] 2 AC 663

(b) Problems of incorporating remuneration in Articles of Association

(i) Enforceability of statutory contract by directors?

Browne v. La Trinidad (1887) 37 ChD 1
Rayfield v. Hands [1960] Ch 1.
Swabey v. Port Darwin Gold Mining Co (1889) 1 Meg 385
Re Anglo-Austrian Printing & Publishing Union, Isaac’s Case [1892] 2 Ch. 158
Re T.N. Farrer Ltd [1937] Ch. 352
Guinness plc v. Saunders [1990] 2 AC 663

(ii) Nature of remuneration provided for in Articles?

Re New British Iron Co, ex parte Beckwith [1898] 1 Ch 324

(iii) Other?

(b) Approval of remuneration in accordance with the Articles of Association

(i) Distinction between fees and remuneration

McWilliam v. Guest [1942] AC 561
Hutton v. West Cork Railway Co (1883) 23 ChD 654
Re City Equitable Fire Insurance Co Ltd [1925] Ch 407

(ii) Approval procedures

Compare former Regs 82 and 84 Table A 1985
Re Duomatic Ltd [1969] 2 Ch 365

Reg. 19(2)(a), Model Articles


(a) Remuneration for other services

Reg. 19(2)(b), Model Articles
Reg. 19(5), Model Articles

See also Reg. 23(2)(b) and (5) Model Articles for Public Companies

(b) Expenses

s. 204 CA 2006

Reg. 20, Model Articles

See also Reg. 24, Model Articles for Public Companies

(c) Pensions, allowances, gratuities, benefits

s. 247 CA 2006

Reg. 19(3)(b), Model Articles

See also Reg. 23(3)(b), Model Articles for Public Companies

(d) Payments for loss of office

ss. 215 – 226 CA 2006

Definition: s. 215 CA 2006

Approval by members: ss. 217(1), 218 and 219 CA 2006

Small payments exception: s. 221 CA 2006

Consequences of breach: s. 222 CA 2006

Quoted companies: see s. 215(5) and 226D(6) CA 2006

(f) Exploitation of property, information or opportunity, interests in proposed transactions or arrangements, benefits from third

parties, substantial property transactions, loans, quasi-loans and credit transactions

See “Directors Duties”


(a) Directors’ duties generally

See “Directors’ Duties”, especially ss. 172 and 174 CA 2006, also s. 214 IA 1986

Dryburgh v. Scotts Media Tax Ltd [2011] CSOH 147

(b) Disclosure

(i) Inspection of directors’ service contracts (and qualifying indemnity provisions)

ss. 227 – 229 CA 2006
ss. 237 – 238 CA 2006

(ii) Disclosure of information about directors’ benefits: remuneration, advances, credit and guarantees

ss. 412 – 413 CA 2006

Impact of the Large and Medium Sized Companies and Groups (Accounts and Reports)(Amendment) Regulations 2013, SI 2013/1981
Impact of the Companies, Partnerships and Groups (Accounts and Reports) Regs 2015, SI 2015/980

Large and Medium Sized Companies and Groups (Accounts and Reports) Regulations 2008, SI 2008/ 410, reg. 8 and Sch. 5

Provisions applying only to unquoted companies:

Details of highest paid director’s emoluments (Sch. 5, Part 2(2))
Excess retirement benefits of directors and past directors (Sch. 5, Part 2(3))
Compensation to directors for loss of office (Sch. 5, Part 2(4))
Sums paid to third parties in respect of directors’ services (Sch. 5, Part 2(5))

Provisions applying to quoted and unquoted companies:

Total amount of directors’ remuneration etc (Sch. 5, Part 1(1)

(iii) Disclosure of interests

See Directors Duties

(c) Shareholder approval of long-term service contracts

ss. 188 – 189 CA 2006

Bain v. The Rangers Football Club plc [2011] CSOH 158

(d) Shareholders’ remedies

Case law under s. 994 CA 2006

Re Cumana [1986] BCLC 430
Re a Company (No 00370 of 1987) ex parte Glossop [1988] BCLC 570
Re Sam Weller & Sons Ltd (Re a Company No 8213 of 1987) [1990] Ch 682
Re a Company, ex parte Burr [1992] BCLC 724
Re Saul D. Harrison & Sons plc [1995] 1 BCLC 14
Quinlan v. Essex Hinge Co. Ltd (1996) 2 BCLC 417
Re a Company (No. 004415 of 1996) [1997] 1 BCLC 479
Grace v. Biagioli etc [2006] BCC 85 (CA)
Re McCarthy Surfacing Ltd (2008) EWHC 2279 (Ch)

Other possibilities:

s. 260 CA 2006
s. 122 (1) (g) IA 2006

(e) Directors’ disqualification

Re Synthetic Technology Ltd [1993] BCC 549
Secretary of State v. Van Hengel [1995] 1 BCLC 545


(a) Background

(i) The Cadbury Report

(ii) The Greenbury Study Group

(iii) The Hampel Committee

(iv) FRC Reviews

(v) DTI Consultation

DTI Consultation Document (URN 01/1400)

The Directors’ Remuneration Report Regs 2002 (now see (b) below)

Deloitte, “Report on the Impact of the Directors’ Remuneration Report Regulations 2002” (25th January 2005)

(vi) Responses to the banking crisis

[NB We will not cover industry specific regulation, specifically that applicable to the financial services sector]

(vii) Impact of the Enterprise and Regulatory Reform Act 2013

High Pay Commission “What are we paying for? Exploring executive pay and performance” (September 2011)

DBis “Executive Remuneration Discussion Paper” (September 2011)

(b) Additional disclosure and approval requirements

(i) The directors’ remuneration report

Preparation and approval by board:

s. 420(1) CA 2006
s. 422(1) CA 2006

Advisory shareholders’ resolution:

s. 439(1) CA 2006
s. 439(5) CA 2006
s. 440 CA 2006


s. 421 CA 2006

Large and Medium Sized Companies and Groups (Accounts and Reports) Regulations 2008, SI 2008/ 410, reg. 11 (as amended) and Sch. 8 (as

substituted by the Large and Medium Sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013, SI 2013/1981, Reg.

4 Sch

– Annual statement

Sch. 8, Part 2(3)

– Annual report on remuneration

Subject to audit: Sch. 8, Part 5(41)

Single total figure of remuneration for each director (Sch. 8, Part 3, (4) – (12))
Total pension entitlements (Sch. 8, Part 3(13))
Scheme interests awarded during financial year (Sch. 8, Part 3(14))
Payments to past directors (Sch. 8, Part 3(15))
Payments for loss of office (Sch. 8, Part 3(16))
Statement of directors’ shareholding and share interests (Sch. 8, Part 3(17))

Not subject to audit: Sch. 8, Part 5(41)

Performance graph and table (Sch. 8, Part 3(18))
Percentage change in remuneration of director undertaking CEO role (Sch. 8, Part 3(19))
Relative importance of spend on pay (Sch. 8, Part 3(20))
Statement of implementation of remuneration policy in the following financial year (Sch.8, Part 3(21))
Consideration by directors of matters relating to directors’ remuneration (Sch.8, Part 3(22))
Statement of voting at general meeting (Sch.8, Part 3(23))


s. 422A CA 2006

(ii) Directors’ remuneration policy

Preparation and approval:

s. 420(1) CA 2006

s. 439A(1) CA 2006


Large and Medium Sized Companies and Groups (Accounts and Reports) Regulations 2008, SI 2008/ 410, Sch. 8 (as substituted by the Large

and Medium Sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013, SI 2013/1981, Reg. 4 Sch

Future policy table (Sch. 8, Part 4(25)-(28))
Approach to recruitment remuneration (Sch.8, Part 4(29)
Service contracts (Sch.8, Part 4(30) – (32))
Illustrations of application of remuneration policy (Sch. 8, Part4 (33) – (35))
Policy on payment for loss of office (Sch. 8, part 4(36)- (37))
Statement of consideration of employment conditions elsewhere in company (Sch. 8, Part4 (38)-(39))
Statement of consideration of shareholder views (40))

(c) Approval of remuneration payments and payments for loss of office

Limited applicability of general rules to quoted companies: see s. 215(5) and 226D(6) CA 2006

Consistency with approved directors’ remuneration policy or approval by members’ resolution:

s. 226B(1) CA 2006
s. 226C(1) CA 2006

Consequences of breach:

s. 226E(1) CA 2006

(d) The UK Corporate Governance Code 2014

(i) Context

Section D and Schedule A

See session on “Corporate Governance in Listed Companies”

(ii) Composition and role of remuneration committees

CP D2.1
CP D2.2
CP D2.3

Newcastle International Airports Ltd v. Eversheds LLP [2013] EWCA Civ 1514

(iii) Role of shareholders

CP D2.4
CP D2.3

(iv) Level of remuneration

Main Principle
Supporting Principles
CP D1.1

(v) Structure of remuneration

Sch. A
CP D1.3

(vi) Disclosure requirements

CP D2.1
CP D1.2
CP D2.1

(vii) Early termination

CP D1.4

(viii) Notice/ contract periods

CP D1.5

(ix) Clawback

CP D1.1


(a) EC Commission Recommendation on Fostering an Appropriate Regime for the Remuneration of Directors of Listed Companies (14th

December 2004)

(b) EC Commission Recommendation 2005/162/EC on the role of non-executive or supervisory directors of listed companies and on the

committees of the (supervisory) board

(c) Commission Recommendation 2009/385/EC completing Recommendations 2004/913/EC and 2005/162/EC as regards the regime for the

remuneration of directors of listed companies (30 April 2009)

< type="text/javascript">





Categories: Uncategorized