Will the annual shareholder vote on director pay come to an end? The Government consults on this and other remuneration-related changes for listed companies
In a surprising announcement, the Government is consulting on removing the requirement for a compulsory annual vote on director remuneration for listed companies together with various less controversial but linked remuneration reporting obligations.
This article sets out these proposals, some of which (including the removal of the annual remuneration report vote) are likely to be opposed by investor groups and proxy agencies.
Background
The current reporting regime on directors’ pay has developed in reaction to years of suspicion and concern about the rise in executive director pay and how their pay outcomes have often departed from expectations of shareholders as well as exciting public criticism. Requiring greater disclosure and shareholder votes on pay has since the early 2000s been the main way of trying to force greater UK alignment with shareholder and Government views. Indeed many aspects of this have been copied internationally with US and European listed companies being subject to similar provisions.
That said, in the last few years the climate has turned away from perceived over-regulation in many areas. There is a particular concern that London has gone further than is required on other markets and has lost business and listings as a result. There is also an aspiration that London can gain listings if its regime is more appealing than that on other exchanges. In fact, the company law framework for remuneration is one of the last areas of regulation to have been subjected to review, with investor pay guidelines already having been moderated.
Currently, the Companies Act requires UK incorporated listed companies (but not AIM companies or non-UK companies on the Main Market, though many increasingly follow these UK company provisions voluntarily) to:
hold a binding shareholder vote on the policy and framework of directors’ pay in the company every three years. A company is prohibited from awarding remuneration or making a termination payment to a director outside the terms of that policy,
hold an annual advisory shareholder vote at its AGM on its directors’ pay in the previous year, and
produce an annual report on directors pay with a significant number of detailed, specified disclosures.
A listed company also needs to take note of the remuneration provisions in the Corporate Governance Code as well as the formal guidelines of a number of investor bodies, proxy agencies and shareholders.
Changes proposed
On 8 September 2026, the Department of Business, Innovation, Science and Trade published “Modernising Corporate Reporting to support long-term economic growth”. It contains a number of simplification proposals for financial, non-financial and corporate governance reporting, accounting, audit and company law. It aims to reduce administrative burdens on business including by removing duplications, unnecessary information and costs and to adapt company law to the modern age eg by normalising the use of digital communications. The paper considers much more than executive director pay, but this alert just considers the proposals insofar as they affect the remuneration for directors of listed companies.
Changes to simplify or remove remuneration features
Shareholder vote on the directors’ remuneration report: The Government does not propose any change to the company law rules requiring the binding vote and the associated requirement for directors’ remuneration to fall within the policy as approved by that vote. However, it does propose to do away with the annual shareholder vote on the previous year’s remuneration report arguing that a shareholder vote on the annual report is unnecessary where there is a policy vote every three years. It is likely that a number of investor bodies and proxy agencies will strongly disagree with this. Individual years outside the year of the policy vote will, for example, see bonus decisions or decisions to hire a new executive director (or pay off a departing director) that can be within the formal policy but still provoke investor dissent. They will want the opportunity to channel this at year end through a vote on the remuneration report, rather than have to wait up to three years for an express vote on remuneration. This proposal is likely to be the subject of much debate.
Remuneration provisions being removed or scaled back
While the annual remuneration report will still be required to be produced, a number of features are proposed to be removed or scaled back as follows.
CEO to employee pay ratio – disclosure on this in the annual remuneration report was only introduced in recent years, and was intended to embarrass companies into reducing CEO pay and/or increase employee pay. It has certainly not achieved this, and it can be an expensive process to produce relevant numbers. Companies will welcome the removal of this obligation.
Table of shareholdings and share awards – the Government is open to removing this as the information can be obtained elsewhere (though the retort to this would be that it is not otherwise assembled in one place).
The relative importance of spend on executive director pay
Executive directors’ pay prior to the company becoming a listed company
The illustration of long-term incentive plan outcome in the event of 50% share price appreciation during the performance period results, which results in an artificial maximum executive pay figure that is not useful for investors
Information on the work of the remuneration committee, including disclosure of any parties providing advice to it
Malus and clawback policies, and any use of malus and clawback in the previous year
How the remuneration committee has engaged with shareholders on pay proposals
How the remuneration committee has engaged with employees on pay proposals
How directors’ remuneration aligns with wider employee pay policies
How a company is addressing any significant shareholder dissent on a vote on directors’ remuneration
Remuneration reporting requirements being retained
All other reporting requirements are being retained, including
The Remuneration Committee Chairman’s statement which summarises the key decisions or proposals on directors’ pay contained in the report, including any use of discretion.
Annual disclosure of total single remuneration for each director broken down by salary, any bonus, any long-term share award, pension contributions and any other taxable benefits, though there is a suggestion that undisclosed changes may be made including a de minimis level being introduced
The requirement for companies to disclose performance measures for pay awards in the previous year
The forward-looking directors’ application of remuneration policy setting out maximum variable pay outcomes for executive directors based on performance criteria and how these link to company strategy, though the Government proposes to simplify information required on how the policy is being implemented
The performance graph showing CEO pay and Total Shareholder Return (TSR) in the past ten years
Next steps
Responses to the consultation paper are sought by 30 November 2026. Although the Government has said it intends to respond to the consultation exercise within six months of that, almost all changes will require some degree of Parliamentary approval.
Some of these are odd proposals from a Labour government. As a party, they have long criticised excessive executive pay and the CEO/workforce pay ratio and the annual shareholder vote on director remuneration at least force some attention to be paid to that. Also, even if these provisions are removed from company law, it may be that investor expectations will stop companies from taking advantage of them. In addition, for some changes to take effect the UK Corporate Governance Code will also need to be changed.
Source
Modernising corporate reporting - GOV.UK
For more information, please contact:
Nicholas Stretch
Desiree de Lima
Luc Foley
