Christmas is already a distant memory and the January blues have well and truly kicked in. The start of a year always brings the same concerns, such as how do I shift this festive weight, how will I manage to keep to my New Year resolutions, how will I make it to the office in the snow and how will I deal with the Directors' Remuneration Report? 2013 is an important year, and not just because it is the first year since 1987 to contain four different digits. 2013 is the crucial transition year between the old DRR disclosure obligations and the new BIS driven regulations. So the question for all those holding the pen on their DRR is where do you even begin?
The 'shareholder spring' of 2012 reminded everybody tasked with contributing to a DRR how important it is to get the message and the disclosure right. Of course, the information to be included requires some consideration but, inevitably, that writes itself and it has been the way in which the review of the last year is presented that keeps Compensation Directors up at night.
Not quite out with the old…
Now, of course, not only must a DRR comply with the current requirements (i.e. those contained in The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (please can one of the changes be to use a snappier title next time, Mr Parliamentary draftsman?) and the UK Corporate Governance Code, as well as the recently updated ABI's Principles on Remuneration and the NAPF's Corporate Governance Policy and Voting Guidelines) but consideration must also be given to the new BIS proposals.
…but quite possibly in with the new
The draft regulations were released in June 2012, with the consultation on those provisions ending in September. Whilst there is no official word from BIS as to when the "final" draft will arrive, there is expected to be an announcement in April 2013. This, of course, will be too late in the day for many DRR authors.
So decisions must be made as to how to approach the drafting of this year's DRR. Will you keep to the format currently required and used for the last few years? Or will you look to incorporate the requirements set out in the draft 2013 regulations? Will you look to go with something that is in the middle of those two approaches? If so, whereabouts in the middle? Which aspects of the 2013 regulations will you include? Which will you leave out until the regulations are in force?
Road-testing the approach
For many companies, this year's DRR is a great opportunity to road-test the approach they are going to take next year when the new rules will be in force. It looks like companies are going to have a crack at a new style report, not least because it gives them the ability to seek feedback from shareholders on what they might say and how they might say it when the new rules are in place. Without mixing too many metaphors, it feels a bit like companies will be taking their mock exams in 2013 as part of their preparation for the real thing in 2014.
Looking forward and looking back
Splitting the report in to BIS' proposed two parts should be relatively straightforward. A forward looking policy will not yet be subject to a binding vote, so perhaps 2013 is the perfect time to experiment slightly with the new style. The second part, namely on how the policy was implemented in the last year, will probably include the information previously disclosed, albeit there is now the question of whether (and how) to include the single pay figure.
Many DRRs already include a letter from the Chairman of the Remuneration Committee at the start, so at least that "new" aspect will not be too cumbersome if indeed the new report is to try to meet the spirit of the BIS proposals.
If you would like any assistance in drafting your DRR, or would just like to discuss how to approach combining two regimes, please do get in touch.